AMERICAN CAPITAL EQUITY INCOME FUND INC, 497, 1995-08-21

AMERICAN CAPITAL EQUITY INCOME FUND INC
497, 1995-08-21

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VAN KAMPEN AMERICAN CAPITAL
EQUITY INCOME FUND
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Van Kampen American Capital Equity Income Fund, formerly known as American
Capital Equity Income Fund, Inc. (the "Fund"), is a mutual fund seeking as its
primary objective the highest possible income consistent with safety of
principal. Long-term growth of capital is an important secondary objective. The
Fund attempts to achieve these investment objectives by investing primarily in
income-producing equity instruments and other debt securities issued by a wide
group of companies in many different industries. There is no assurance that the
Fund will achieve its investment objectives.

The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is (800)
421-5666.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR 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, OR 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 POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated August 21, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or, for Telecommunications Device For
the Deaf, (800) 772-8889.

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

THIS PROSPECTUS IS DATED AUGUST 21, 1995.
<PAGE> 2

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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......................................................... 10
Investment Objectives and Policies............................... 10
Investment Practices............................................. 12
Investment Advisory Services..................................... 16
Alternative Sales Arrangements................................... 18
Purchase of Shares............................................... 21
Shareholder Services............................................. 30
Redemption of Shares............................................. 35
Distribution Plans............................................... 38
Distributions from the Fund...................................... 40
Tax Status....................................................... 41
Fund Performance................................................. 42
Description of Shares of the Fund................................ 44
Additional Information........................................... 44
</TABLE>

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NO DEALER, SALESPERSON 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.
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<PAGE> 3

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

THE FUND. Van Kampen American Capital Equity Income (the "Fund") is a
diversified open-end management investment company organized as a Delaware
business trust.

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

INVESTMENT OBJECTIVES. Highest possible income consistent with safety of
principal. Long-term growth of capital is a secondary objective. There is,
however, no assurance that the Fund will be successful in achieving its
objectives.

INVESTMENT POLICY. Invests primarily in income-producing equity instruments and
other debt securities. Because prices of common stocks and debt securities
fluctuate, the value of an investment in the Fund will vary based upon the
Fund's investment performance. The medium grade debt securities in which the
Fund may invest are subject to greater market risks and less assurance as to the
ability of the issuer to meet its principal and interest obligations than higher
rated debt securities. Use of options, futures contracts and related options may
include additional risks. See "Investment Practices -- Using Options, Futures
Contracts and Related Options."

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

ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class of
shares that best suits their circumstances and objectives. See "Alternative
Sales Arrangements -- Factors for Consideration." Each class of shares
represents an interest in the same portfolio of investments of the Fund. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Alternative Sales Arrangements." For
information on redeeming shares see "Redemption of Shares."

Class A Shares. These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. The Fund pays an annual
service fee of up to 0.25% of its average daily net assets attributable to such
class of shares. See "Purchase of Shares -- Class A Shares" and "Distribution
Plans."

Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of five percent of redemp-

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tion proceeds during the first year, declining each year thereafter to zero
percent after the fifth year. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to one percent of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution Plans." Class B shares will convert
automatically to Class A shares six years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."

Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to one percent of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."

DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are
distributed on a quarterly basis, and capital gains, if any, are distributed
annually. Such distributions are automatically reinvested in shares of the Fund
at net asset value per share (without sales charge) unless payment in cash is
requested. See "Distributions from the Fund."

INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor").

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

4
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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
offering price)............... 5.75%(1) None None

Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None

Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds).......... None(2) Year 1--5.00% Year 1--1.00%
Year 2--4.00%
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 fee.................... None None None
</TABLE>

---------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares."

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

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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)........................ .44% .44% .44%

12b-1 Fees(3) (as a percentage of average
daily net assets)........................ .21% 1.00%(5) 1.00%(5)

Other Expenses (as a percentage of average
daily net assets)(4)..................... .37% .38% .38%

Total Fund Operating Expenses (as a
percentage of average daily net
assets).................................. 1.02% 1.82% 1.82%
</TABLE>

---------------
(3) Up to .25% for Class A shares and one percent for Class B and C shares. See
"Distribution Plans."

(4) See "Investment Advisory Services."

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

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<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: 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 1.02% for
Class A shares, 1.82% for Class B shares
and 1.82% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $67 $88 $111 $175
Class B............................... $70 $90 $116 $173*
Class C............................... $29 $57 $ 99 $214
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $67 $88 $111 $175
Class B............................... $18 $57 $ 99 $173*
Class C............................... $18 $57 $ 99 $214
</TABLE>

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* Based on conversion to Class A shares after six years.

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the Fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."

7
<PAGE> 8

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated)

The following information for each of the five most recent years has been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. This information should be read in conjunction with the related
financial statements and notes thereto included in the Statement of Additional
Information.

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------- --------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............................ $5.55 $5.15 $4.83 $4.00 $4.48 $3.94
---------- ---------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................... .27 .25 .255 .26 .255 .295
Expenses........................................................ (.06) (.06) (.05) (.045) (.035) (.035)
---------- ---------- --------- --------- -------- --------
Net investment income........................................... .21 .19 .205 .215 .22 .26
Net realized and unrealized gains or losses on securities....... (.317) .6055 .31 .83 (.42) .575
---------- ---------- --------- --------- -------- --------
Total from investment operations................................ (.107) .7955 .515 1.045 (.20) .835
---------- ---------- --------- --------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income........................................... (.1855) (.168) (.195) (.215) (.235) (.295)
Net realized gains on securities................................ (.0975) (.2275) -- -- (.045) --
---------- ---------- --------- --------- -------- --------
Total distributions............................................. (.283) (.3955) (.195) (.215) (.28) (.295)
---------- ---------- --------- --------- -------- --------
Net asset value, end of period.................................. $5.16 $5.55 $5.15 $4.83 $4.00 $4.48
========== ========== ========= ========= ======== ========
TOTAL RETURN(3)................................................. (1.98%) 16.00% 10.72% 26.67% (4.68%) 21.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................ $240.5 $187.6 $123.8 $103.1 $85.4 $102.4
Ratios to average net assets
Expenses....................................................... 1.02% 1.06% 1.01% 1.02% .89% .83%
Net investment income.......................................... 3.60% 3.33% 3.95% 4.88% 5.39% 6.09%
Portfolio turnover rate......................................... 92% 101% 74% 80% 150% 26%

1988 1987 1986 1985
------ ------- ------- -------
<S> <<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............................ $3.92 $4.59 $4.75 $4.59
------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................... .33 .35 .33 .27
Expenses........................................................ (.03) (.04) (.04) (.03)
------- -------- -------- --------
Net investment income........................................... .30 .31 .29 .24
Net realized and unrealized gains or losses on securities....... .18 (.185) .29 .50
------- -------- -------- --------
Total from investment operations................................ .48 .125 .58 .74
------- -------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income........................................... (.30) (.30) (.30) (.30)
Net realized gains on securities................................ (.16) (.495) (.44) (.28)
------- -------- -------- --------
Total distributions............................................. (.46) (.795) (.74) (.58)
------- -------- -------- --------
Net asset value, end of period.................................. $3.94 $3.92 $4.59 $4.75
======= ======== ======== ========
TOTAL RETURN(3)................................................. 12.58% 1.90% 12.21% 17.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................ $94.8 $93.7 $101.1 $106.5
Ratios to average net assets
Expenses....................................................... .79% .76% .76% .72%
Net investment income.......................................... 7.32% 6.04% 5.80% 5.41%
Portfolio turnover rate......................................... 73% 90% 53% 30%
</TABLE>

(Table continued on following page)

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--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
--------------------------------------------------------------------------------

CLASS B CLASS C
----------------------------------------- ------------------------------
YEAR YEAR MAY 1, 1992(2) YEAR JULY 6, 1993(2)
ENDED ENDED THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993(1) 1992(1) 1994 1993(1)
------------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $5.55 $5.15 $4.83 $5.55 $5.37
---------- ---------- -------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................. .21 .24 .16 .23 .11
Expenses.......................................... (.08) (.10) (.06) (.09) (.05)
---------- ---------- -------- --------- --------
Net investment income............................. .13 .14 .10 .14 .06
Net realized and unrealized gains or losses on
securities....................................... (.277) .6155 .337 (.287) .379
---------- ---------- -------- --------- --------
Total from investment operations.................. (.147) .7555 .437 (.147) .439
---------- ---------- -------- --------- --------
LESS DISTRIBUTIONS FROM
Net investment income............................. (.13) (.128) (.117) (.14) (.064)
Excess of book-basis net investment income........ (.0155) -- -- (.0055) --
Net realized gains on securities.................. (.0975) (.2275) -- (.0975) (.195)
---------- ---------- -------- --------- --------
Total distributions............................... (.243) (.3555) (.117) (.243) (.259)
---------- ---------- -------- --------- --------
Net asset value, end of period.................... $5.16 $5.55 $5.15 $5.16 $5.55
========== ========== ======== ========= ========
TOTAL RETURN(3)................................... (2.70%) 14.94% 9.17% (2.70%) 8.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............. $242.0 $115.4 $13.3 $26.9 $10.0
Ratios to average net assets (annualized)
Expenses......................................... 1.82% 1.89% 1.87% 1.82% 1.98%
Net investment income............................ 2.82% 2.45% 3.06% 2.83% 2.27%
Portfolio turnover rate........................... 92% 101% 74% 92% 101%
</TABLE>

---------------
(1) Based on average month-end shares outstanding.
(2) Commencement of offering of sales.

(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.

9
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THE FUND
------------------------------------------------------------------------------

The Fund is an open-end, diversified management investment company. This type
of company is commonly known as a mutual fund. A mutual fund provides, for those
who have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.

Fourteen Trustees have the responsibility for overseeing the affairs of the
Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.

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

The Fund operates under the following four fundamental investment policies
which may not be changed without approval by a majority (as defined in the
Investment Company Act of 1940 ("1940 Act")) vote of the Fund's shareholders.

1. The Fund invests primarily in securities which provide the highest possible
income as is consistent with safety of principal. To the extent possible,
considering its primary investment objective, the Fund seeks long-term
growth of capital as a secondary objective.

2. The Fund may invest in income-producing equity instruments (subject to
number three below), debt securities and warrants or rights to acquire such
securities, in such proportions as economic conditions indicate would best
accomplish the Fund's objectives. Although the Fund has not adopted any
fundamental investment policies specifying the rating categories for
investment in debt securities, it is the current operating policy of the
Fund to invest in debt securities rated Baa or higher by Moody's Investor's
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation
("S&P") or in nonrated securities considered by the Adviser to be of
comparable quality. It is also the operating policy of the Fund to invest
not more than 10% of its total assets in debt securities rated Baa by
Moody's or BBB by S&P or in nonrated securities considered by the Adviser
to be of comparable quality. These operating policies do not apply to
convertible securities which are selected primarily on the basis of their
equity characteristics. Ratings at the time of purchase determine which
securities may be acquired, and a subsequent reduction in ratings does not
require the Fund to dispose of a security. Securities rated Baa by Moody's
or BBB by S&P are considered by the rating agencies to be medium grade
obligations which possess speculative characteristics so that changes in
economic conditions or other circumstances are more

10
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likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated securities. Debt securities with
longer maturities generally tend to produce higher yields and are subject
to greater market price fluctuations as a result of changes in interest
rates than debt securities with shorter maturities.

3. The Fund under normal conditions invests at least 65% of its total assets
in income-producing equity investments, which may include without
limitation dividend paying common or preferred stocks, interest paying
convertible debentures or bonds, or zero coupon convertible securities (on
which the Fund accrues income for tax and accounting purposes, but receives
no cash).

4. The Fund intends to diversify its investments among various industries,
although the Fund may invest up to 25% of its total assets in a particular
industry at any one time.

In selecting common stocks, the Adviser seeks attractive growth investments on
an individual company basis which may include common stocks which do not pay
dividends. The Fund may invest in securities that have above average volatility
of price movement including warrants or rights to acquire securities. Because
prices of common stocks and debt securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries. There is, however, no assurance that the Fund will be successful
in achieving its objectives.

Convertible securities rank senior to common stocks in a corporation's capital
structure. They are consequently of higher quality and entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. The Fund may purchase convertible
securities rated Ba or lower by Moody's or BB or lower by S&P. Although the Fund
selects these securities primarily on the basis of their equity characteristics,
investors should be aware that debt securities rated in these categories are
considered high risk securities; the rating agencies consider them speculative,
and payment of interest and principal is not considered well assured. To the
extent that such convertible securities are acquired by the Fund there is a
greater risk as to the timely repayment of the principal of, and timely payment
of interest or dividends on, such securities than in the case of higher rated
convertible securities.

For a discussion of the Fund's practices regarding investments in foreign
securities or investments in investment companies, see "Investment Practices --
Securities of Foreign Issuers," "Investment Practices -- Investment in
Investment Companies," respectively.

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<PAGE> 12

When, in the opinion of the Adviser, market conditions dictate a temporary
defensive position, the Fund may invest up to 100% of its total assets in cash,
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements. See "Investment Practices -- Repurchase
Agreements."

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

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid securities held by the Fund, exceeds ten
percent of the value of its net assets. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including: (a) possible
decline in the value of the underlying security during the period while the Fund
seeks to enforce its rights thereto, (b) possible lack of access to income on
the underlying security during this period, and (c) expenses of enforcing its
rights.

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 would otherwise invest separately into a joint account. The cash in
the joint account is then invested 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 the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.

USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize 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 security prices, the Fund generally seeks to
obtain maximum exposure to the securities markets, i.e., to be "fully invested."
Neverthe-

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<PAGE> 13

less, 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 security 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
futures contracts, however, the Fund can compensate for 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 securities markets by increasing its cash
position. By selling 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 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.

In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities.

POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to the
Fund, if the Adviser is not successful in employing such instruments in managing
the Fund's investments, the Fund's performance will be worse than if the Fund
did not make such investments. In addition, the Fund would pay commissions and
other costs in connection with such investments, which may increase the Fund's
expenses and reduce its return. The Fund may write or purchase options in
privately negotiated

13
<PAGE> 14

transactions ("OTC Options") as well as listed options. OTC Options can be
closed out only by agreement with the other party to the transaction. Any OTC
Option purchased by the Fund is considered an illiquid security. Any OTC Option
written by the Fund is with a qualified dealer pursuant to an agreement under
which the Fund may repurchase the option at a formula price. Such options are
considered illiquid to the extent that the formula price exceeds the intrinsic
value of the option. The Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed five
percent of the fair market value of the Fund's assets. In order to prevent
leverage in connection with the purchase of futures contracts by the Fund, an
amount of cash, cash equivalents or liquid high grade debt securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the Custodian.
The Fund may not invest more than ten percent of its net assets in illiquid
securities and repurchase agreements which have a maturity of longer than seven
days. A more complete discussion of the potential risks involved in transactions
in options, futures contracts and related options is contained in the Statement
of Additional Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The Adviser is authorized to place portfolio transactions
with brokerage firms participating in the distribution of shares of the Fund and
other Van Kampen American Capital mutual funds if it reasonably believes that
the quality of the execution and the commission are comparable to that available
from other qualified brokerage firms. The Adviser is authorized to pay higher
commissions to brokerage firms that provide it with investment research
information than to firms which do not provide such services if the Adviser
determines that such commissions are reasonable in relation to the overall
services provided. The information received may be used by the Adviser in
managing the assets of other advisory accounts as well as in the management of
the assets of the Fund.

INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, Van Kampen American Capital Small Capitalization Fund
("Small Cap Fund"), that invests in a broad selection of small capitalization
securities. The shares of the Small Cap Fund are available only to investment
companies advised by the Adviser. The Adviser believes that the use of the Small
Cap Fund will provide the Fund with the most effective exposure to the
performance of the small capitalization sector of the stock market while at the
same time minimizing costs. The Adviser charges no advisory fee for managing the
Small Cap Fund, nor is there any sales load or other charges associated with
distribution of its shares. Other expenses incurred by the Small Cap Fund are
borne by it, and thus

14
<PAGE> 15

indirectly by the Van Kampen American Capital funds that invest in it. With
respect to such other expenses, the Adviser anticipates that the efficiencies
resulting from use of the Small Cap Fund will result in cost savings for the
Fund and other Van Kampen American Capital funds. In large part these savings
will be 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 stocks will need to be performed only
once. The Adviser expects that the Small Cap Fund will experience trading costs
that will be substantially less than the trading costs that would be incurred if
small capitalization stocks were purchased separately for the Fund and other Van
Kampen American Capital funds.

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.

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

SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 15% of the value of
its total assets in securities of foreign governments and companies. Such
investments may be subject to special risks, including changes in currency
exchange rates, future political and economic developments, the possible
imposition of additional withholding taxes on dividend or interest income
payable on the securities, or the seizure or nationalization of companies, or
establishment of exchange controls or adoption of other restrictions which might
adversely affect the investment.

INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
majority (as defined in the 1940 Act) vote of the Fund's shareholders. These
restrictions provide, among other things that the Fund may not:

1. Invest more than 25% of its total net asset value in any one 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.

15
<PAGE> 16

2. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than five
percent of the Fund's assets would be invested in such securities;
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.

In addition to the foregoing, the Fund has adopted additional investment
restrictions which may be changed by the Trustees without a vote of
shareholders. These restrictions provide that the Fund may not:

1. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 15% of the value of the Fund's total assets would be
invested in such securities; or

2. Invest more than ten percent of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements that have a
maturity of longer than seven days.

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

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

Van Kampen 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 own, in the aggregate, not more

16
<PAGE> 17

than seven percent of the common stock of VK/AC Holding, Inc. and have the
right to acquire, upon the exercise of options, approximately an additional 11%
of the common stock of VK/AC Holding, Inc. Presently, and after giving effect to
the exercise of such options, no officer or trustee of the Fund owns or would
own five percent or more of the common stock of VK/AC Holding, Inc.

ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed on average daily net assets of the Fund at the annual rate of 0.50% of
the first $150 million of average net assets; 0.45% on the next $100 million of
average net assets; 0.40% on the next $100 million of average net assets; and
0.35% on average net assets in excess of $350 million. Under the Advisory
Agreement, the Fund also reimburses the Adviser for the cost of the Fund's
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. Operating expenses paid by the Fund
include shareholder service agency fees, distribution fees, service fees,
custodial fees, legal and accounting fees, the costs of reports and proxies to
shareholders, trustees' fees, and all other business expenses not specifically
assumed by the Adviser. Advisory (management) fees, and total operating expense,
ratios are shown under the caption "Annual Fund Operating Expenses and Example"
herein.

From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.

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

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 directors, trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT. Mr. James Gilligan is primarily responsible for the day-
to-day management of the Fund's investment portfolio. Mr. Gilligan is Vice
President of the Fund and has been Vice President -- Portfolio Manager of the
Adviser since March 1990. Prior to that time, he was a securities analyst with
the Adviser. Mr. Gilligan has been primarily responsible for managing the Fund's
investment portfolio since January 1990.

17
<PAGE> 18

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

The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.

CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 5.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."

CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
B Shares." Class B shares will convert automatically to Class A shares six years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class B shares.

CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will automatically convert to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.

18
<PAGE> 19

CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the calendar month in which the shares were purchased and will no longer be
subject to the distribution fee. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The purpose of the conversion feature is to relieve the
holders of the Class B shares and Class C shares that have been outstanding for
a period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares or Class C
shares as the case may be, from the burden of the ongoing distribution fee.

For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund 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 Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.

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 distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years, respectively, after the end of the calendar month
in which the shareholder's order to purchase was accepted.

FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares. In this regard, Class A shares may
be more

19
<PAGE> 20

beneficial to the investor who qualifies for reduced initial sales charges or
purchases shares at net asset value, as described herein under "Purchase of
Shares -- Class A Shares." For these reasons, the Distributor will reject any
order of $500,000 or more for Class B shares or any order of $1 million or more
for Class C shares.

Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to ongoing distribution fees and, for a five-year or one-year
period, respectively, being subject to a contingent deferred sales charge.
Ongoing distribution fees on Class B shares and Class C shares will be offset to
the extent of the additional funds originally invested and any return realized
on those funds. However, there can be no assurance as to the return, if any,
which will be realized on such additional funds, For investments held for ten
years or more, the relative value upon liquidation of the three classes tends to
favor Class A or Class B shares, rather than Class C shares.

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.

The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION
OF THE CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH
RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE
INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution Plans."

20
<PAGE> 21

GENERAL. Dividends paid by the Fund with respect to Class A, Class B and Class
C shares will be calculated in the same manner at the same time on the same day,
except that the distribution fees and any incremental transfer agency costs
relating to Class B and Class C shares will be borne by the respective class.
See "Distributions from the Fund." Shares of the Fund may be exchanged, subject
to certain limitations, for shares of the same class of other mutual funds
advised by the Adviser. See "Shareholder Services -- Exchange Privilege."

The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure than no such conflict arises.

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

GENERAL

The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold with an initial sales charge; Class B shares
and Class C shares are sold without an initial sales charge and are subject to a
contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to purchase. Contact the Service Department at (800) 421-5666
for further information and appropriate forms.

Initial investments must be at least $500, and subsequent investments must be
at least $25. Both minimums may be waived by the Distributor for plans involving
periodic investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.

Shares may be purchased on any business day through authorized dealers. Shares
may also be purchased by completing the application accompanying this Prospectus
and forwarding the application, through the designated dealer, to the
shareholder service agent, ACCESS Investor Services, Inc., a wholly owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
the Fund,

21
<PAGE> 22

investors must specify whether the purchase is for Class A, Class B or Class C
shares.

Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share is determined once daily as of the close of trading on the
New York Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time)
each day the Exchange is open. Net asset value per share for each class is
determined by dividing the value of the Fund's securities, cash and other assets
(including accrued interest) attributable to such class less all liabilities
(including accrued expenses) attributable to such class, by the total number of
shares of the 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, (iii) valuing
all other over-the-counter securities for which market quotations are available
at the mean between the most recent bid and asked quotations supplied by NASDAQ
or broker-dealers, and (iv) 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. Short-term investments are valued in the
manner described in the notes to the Financial Statements included in the
Statement of Additional Information.

Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value (plus applicable Class A sales charges) 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. Orders
received by dealers after the close of the Exchange are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
orders received by them to the Distributor so they will be received prior to
such time. Orders of less than $500 are mailed by the dealer and processed at
the offering price next calculated after acceptance by ACCESS.

Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B

22
<PAGE> 23

and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the distribution fee and incremental transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class has exclusive
voting rights with respect to approvals of the Rule 12b-1 distribution plan
pursuant to which its distribution fee and/or service fee is paid which relate
to a specific class, and (iii) Class B and Class C shares are subject to a
conversion feature. Each class has different exchange privileges and certain
different shareholder service options available. See "Distribution Plans" and
"Shareholder Services -- Exchange Privilege." The net income attributable to
Class B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by the amount of the distribution fee and incremental
expenses associated with such distribution fee. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.

Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund with subsidiaries of The Travelers Inc.

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

23
<PAGE> 24

CLASS A SHARES

The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED
AS % OF AS % OF TO DEALERS
SIZE OF NET AMOUNT OFFERING (AS A % OF
INVESTMENT INVESTED PRICE OFFERING PRICE)
<S> <C> <C> <C>
------------------------------------------------------------------------------
Less than $50,000............................ 6.10% 5.75% 5.00%
$50,000 but less than $100,000............... 4.99% 4.75% 4.00%
$100,000 but less than $250,000.............. 3.90% 3.75% 3.00%
$250,000 but less than $500,000.............. 2.83% 2.75% 2.25%
$500,000 but less than $1,000,000............ 2.04% 2.00% 1.75%
$1,000,000 and over * * *
------------------------------------------------------------------------------
</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 one percent in the event of certain redemptions
within one year of the purchase. The contingent deferred sales charge incurred
upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
one percent 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.

In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. Dealers which are
reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the Securities Act of 1933.

The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described herein. Such financial
institutions, other industry professionals and dealers are hereinafter referred
to as "Service Organizations." Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.

24
<PAGE> 25

QUANTITY DISCOUNTS

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

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

A person eligible for a reduced sales charge includes an individual, their
spouse and minor children 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 in Section 2(a)(8) of the 1940 Act.

As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Money Market Fund ("VK Money Market"), Van Kampen American Capital Tax Free
Money Fund ("VK Tax Free"), Van Kampen American Capital Reserve Fund ("Reserve")
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 in shares of the Fund
alone, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.

Cumulative Purchase Discount. The size of investment shown in the above table
may also be determined by combining the amount being invested in shares of the
Participating Funds plus the current offering price of all shares of the
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 investments 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 also includes purchases of
shares of the Fund over a 13-month period based on the total amount of intended
purchases plus the value of all shares of the Participating Funds previously
purchased 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 the goal is not achieved within
the period, the investor must pay the difference between the charges applicable
to the purchases made and the

25
<PAGE> 26

charges previously paid. The initial purchase must be for an amount equal to at
least five percent of the minimum total purchase amount of the level selected.
If trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application form 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 Fund Reinvestment Programs. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A shares
of the Fund, other Participating Funds, VK Tax Free, VK Money Market or Reserve
with no minimum initial or subsequent investment requirement, and with a lower
sales charge if the administrator of an investor's unit investment trust program
meets certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all investments made from unit trust
distributions will be one percent of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their securities broker or dealer or the Distributor.

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

26
<PAGE> 27

their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.

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

(1) Current or retired Trustees/Directors of funds advised by the Adviser. Van
Kampen American Capital Investment Advisory Corp. 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 subadvisor to any such fund described in (1)
above or an affiliate of such subadvisor; 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 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 -- Volume Discounts,"
during the 13 month period commencing with the first investment pursuant
hereto equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made an amount up to 0.50% of
the amount invested, over a twelve month period following such
transaction.

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

(6) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer 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.

27
<PAGE> 28

(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
Participating Funds, VK Money Market, VK Tax Free or Reserve. For such
investments the Fund imposes a contingent deferred sales charge of one
percent 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% on sales to $5 million,
plus 0.50% on the next $5 million, plus 0.25% on the excess over $10
million.

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

Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer or financial institution
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.
Service Organizations will be paid a service fee as described herein under
"Distribution Plans" on purchases made as described in (3) through (8) above.
The Fund may terminate, or amend the terms of, offering shares of the Fund at
net asset value to such groups at any time.

CLASS B SHARES

Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.

The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
shares, all

28
<PAGE> 29

payments during a month are aggregated and deemed to have been made on the last
day of the month.

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
--------------------------------------------------------------------------
<S> <C>
First................................................................. 5%
Second................................................................ 4%
Third................................................................. 3%
Fourth............................................................... 2.5%
Fifth................................................................ 1.5%
Sixth.................................................................None
</TABLE>

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

In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first, of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five-year period.

To provide an example, assume an investor purchased 100 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 ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten 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 is subject to a deferred sales charge at a
rate of four percent (the applicable rate in the second year after purchase).

A commission or transaction fee of four percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.

CLASS C SHARES

Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of one percent. The charge is assessed on an
amount equal to the lesser of the then current market value or the cost of the
shares being redeemed.

29
<PAGE> 30

Accordingly, no sales charge is imposed on increases in net asset value above
the initial purchase price. In addition, no charge is assessed on shares derived
from reinvestment of dividends or capital gains distributions.

In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first, of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and second, of shares held for more than one year or shares acquired
pursuant to reinvestment of dividends or distributions.

A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class C shares of the Fund.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

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

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

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of those services.

INVESTMENT ACCOUNT. 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 who has an account in certain of the
Participating

30
<PAGE> 31

Funds, or Reserve, may receive statements 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 investment dealers or by mailing a
check directly to ACCESS.

SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, 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 obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than 2.00% of the net asset value of the issued
shares, and bill the party to whom the certificate was mailed.

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. 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.

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 predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized investment dealers. Contact the
Investor Services Department at (800) 421-5666 for further information on how to
utilize this option.

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.

31
<PAGE> 32

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.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, VK Money Market,
VK Tax Free or Reserve.

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

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund, other
than Van Kampen American Capital Government Target Fund ("Government Target"),
may be exchanged for shares of the same class of any other fund without sales
charge, provided that shares of certain Van Kampen American Capital fixed-income
funds may not be exchanged within 30 days of acquisition without Adviser
approval. Shares of Government Target may be exchanged for Class A shares of the
Fund without sales charge. Class A shares of VK Money Market, VK Tax Free or
Reserve that were not acquired in exchange for Class B or Class C shares of a
Participating Fund may be exchanged for Class A shares of the Fund upon payment
of the excess, if any, of the sales charge rate applicable to the shares being
acquired over the sales charge rate previously paid. Shares of VK Money Market,
VK Tax Free or Reserve acquired through an exchange of Class B or Class C shares
may be exchanged only for the same class of shares of a Participating Fund
without incurring a contingent deferred sales charge. Shares of any
Participating Fund, VK Money Market, VK Tax Free or Reserve may be exchanged for
shares of any other Participating Fund if shares of that Participating Fund are
available for sale;

32
<PAGE> 33

however, during periods of suspension of sales, shares of a Participating Fund
may be available for sale only to existing shareholders of a Participating Fund.

Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other Van
Kampen American Capital fund that offers such shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares, without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a disposition of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B or
Class C shareholders would remain subject to the contingent deferred sales
charge imposed by the original fund upon their redemption from the Van Kampen
American Capital complex of funds. The contingent deferred sales charge is based
on the holding period requirements of the original fund.

Since the maximum sales charge rate applicable to purchases of Class A shares
of the Fund is higher than the maximum sales charge rate applicable to the
purchase of Class A shares of Van Kampen American Capital fixed-income funds,
the foregoing exchange privilege may be utilized to reduce the sales charge paid
to purchase Class A shares of the Fund, subject to the exchange fee.

Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although 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. See the Statement of Additional Information.

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. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value per share next calculated after the request is received
in good order with adjustment for any additional sales charge. See "Purchase of
Shares" and "Re-

33
<PAGE> 34

demption of Shares." 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 gain options (except dividend
diversification) and dealer of record as the account from which shares are
exchanged, unless otherwise specified by the shareholder. In order to establish
a systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must file a
specific written request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund may modify, restrict
or terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.

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

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 any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder Services --
Retirement Plans."

Class B and Class C shareholders who established 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 election to
participate in the plan is made. See "Purchase of Shares -- Waiver of Contingent
Deferred Sales Charge" and the Statement of Additional Information.

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 the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon
redemption of shares.

34
<PAGE> 35

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

REGULAR REDEMPTION. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS at P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
dealer. 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.

As described herein under "Purchase of Shares," redemptions of Class B or
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more and for certain qualified 401(k) retirement plans. The
contingent deferred sales charge incurred upon redemption is paid to the
Distributor in reimbursement for distribution-related expenses. See "Purchase of
Shares -- Class A Shares." A custodian of a retirement plan account may charge
fees based on the custodian's fee schedule.

The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption 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.

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany 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. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen

35
<PAGE> 36

American Capital Trust Company serves as IRA custodian, special IRA,
403(b)(7), or Keogh distribution forms must be obtained from and be forwarded to
Van Kampen American Capital Trust Company, P. O. Box 944, Houston, Texas
77001-0944. Contact the Custodian for information.

In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payment 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 the purchase check has cleared, usually a
period of 15 days. Any taxable gain or loss will be recognized by the
shareholder upon redemption of shares.

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

TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record for the account or to
the bank account of record as described below. To establish such privilege a
shareholder must complete the appropriate section of the application form
accompanying this Prospectus or call the Fund at (800) 421-5666 to request that
a copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares, contact the telephone transaction line at (800)
421-5684. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, neither VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. Telephone redemptions may not be available if the shareholder cannot
reach ACCESS by telephone, whether because all telephone

36
<PAGE> 37

lines are busy or for any other reason; in such case, a shareholder would have
to use the Fund's regular redemption procedure previously described. Requests
received by ACCESS prior to 4:00 p.m., New York time, on a regular business day
will be processed at the net asset value per share determined that day. These
privileges are available for all accounts other than retirement accounts. The
telephone redemption privilege is not available for shares represented by
certificates. If an account has multiple owners, ACCESS may rely on the
instructions of any one owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. To establish such privilege a shareholder must
complete the appropriate section of the application form accompanied by this
Prospectus or call the Fund at (800) 421-5666. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.

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

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

37
<PAGE> 38

REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has 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. A Class C shareholder who has 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 (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") 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" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.

------------------------------------------------------------------------------
DISTRIBUTION PLANS
------------------------------------------------------------------------------

Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan," and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit the annual distribution charges that a mutual fund may impose on a class
of shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, the Fund pays a service fee
to the Distributor at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Under the Class B
Plan and Class C Plan, the Fund pays a service fee to the Distributor at an
annual rate of up to 0.25% and a distribution fee at an annual rate of up to
0.75% of the Fund's aggregate average daily net assets attributable to the Class
B or Class C shares to reimburse the Distributor for service fees paid by it to
Service Organizations and for its distribution costs.

The Distributor uses the Class A, Class B and Class C service fee to
compensate Service Organization for personal service and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) up front commissions and transaction fees of up to four
percent of the purchase price of Class B shares

38
<PAGE> 39

purchased by the clients of broker-dealers and other Service Organizations and
(ii) other distribution expenses as described in the Statement of Additional
Information. Under the Class C Plan, the Distributor receives additional
payments from the Fund in the form of a distribution fee at the annual rate of
up to 0.75% of the net assets of the Class C shares as reimbursement for (i) up
front commissions and transaction fees of up to 0.75% of the purchase price of
Class C shares purchased by the clients of broker-dealers and other Service
Organizations and ongoing commissions and transaction fees of up to 0.75% of the
average daily net assets of the Fund's Class C shares and (ii) other
distribution expenses as described in the Statement of Additional Information.

In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.

Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.

The distribution fee attributable to Class B or Class C shares is designed to
permit an investor to purchase such shares without the assessment of a front-end
sales load and at the same time permit the Distributor to compensate Service
Organizations with respect to such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and distribution fee
are the same as those of the initial sales charge with respect to the Class A
shares of the Fund in that in both cases such charges provide for the financing
of the distribution of the Fund's shares.

Actual distribution expenses paid by the Distributor with respect to Class B
or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million,

39
<PAGE> 40

of which $500,000 was recovered in the form of contingent deferred sales charges
paid by investors and $400,000 was reimbursed in the form of payments made by
the Fund to the Distributor under the Class B Plan, the balance of $100,000
would be subject to recovery in future fiscal years from such sources. For the
plan year ended June 30, 1994, the unreimbursed expenses incurred by the
Distributor and carried forward were approximately $7.8 million under the Class
B Plan or 3.95% of average daily net assets of the class and $304,000 under the
Class C Plan or 1.35% of average daily net assets of the class.

If the Class B Plan or Class C 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.

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

In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.

DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed quarterly as dividends to shareholders. Unless the
shareholder instructs otherwise, dividends and distributions are automatically
applied to purchase additional shares of the Fund at the next determined net
asset value. See "Shareholder Services -- Reinvestment Plan."

The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
higher incremental transfer agency fees applicable to such classes of shares.

CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders at
least once a year the excess, if any, of its total profits on the sale of
securities during the year over its total losses on the sale of securities,
including capital losses carried forward from prior years under tax laws. As in
the case of income dividends, capital gains distributions are automatically
reinvested in additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."

40
<PAGE> 41

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

The Fund has qualified and intends to be taxed as a regulated investment
company under the Code. By qualifying as a regulated investment company, the
Fund is not subject to federal income taxes to the extent it distributes its net
investment income and net realized capital gains. Dividends from net investment
income and distributions from any net realized short-term capital gains are
taxable to shareholders as ordinary income. Long-term capital gains
distributions constitute long-term capital gains for federal income tax
purposes. All such dividends and distributions are taxable to the shareholder
whether or not reinvested in shares. However, shareholders not subject to tax on
their income will not be required to pay tax on amounts distributed to them.

Shareholders are notified annually of the Federal tax status of dividends and
capital gains distributions.

To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with
their correct taxpayer identification number.

Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed herein.

Gains or losses on the Fund's transactions in listed options (except certain
equity options) on securities or indexes, futures and options on futures
generally are treated as 60% long-term and 40% short-term, and positions held by
the Fund at the end of its fiscal year generally are required to be marked to
market, with the result that unrealized gains and losses are treated as
realized. Gains and losses realized by the Fund from writing over-the-counter
options constitute short-term capital gains or losses unless the option is
exercised, in which case the character of the gain or loss is determined by the
holding period of the underlying security. The Code contains certain "straddle"
rules which require deferral of losses incurred in certain transactions
involving hedged positions to the extent the Fund has unrealized gains in
offsetting positions and generally terminate the holding period of the subject
position. Additional information is set forth in the Statement of Additional
Information.

The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisors for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their

41
<PAGE> 42

own counsel for further information as to the U.S. and their country of
residence or citizenship tax consequences of receipt of dividends and
distributions from the Fund.

PENNSYLVANIA PERSONAL PROPERTY TAX. The Fund pays Pennsylvania foreign
franchise and corporate net income tax because of its business activities in
Pennsylvania. As a result, Fund shares are exempt from Pennsylvania personal
property taxes. The Fund maintains an office at Mellon Bank Center, Suite 1300,
173 S Market Street, Philadelphia, PA 19103.

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

From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one-year, five-year, and ten-year periods. Other total return
quotations, aggregate or average, over other time periods may also be included.

The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the maximum public offering price (which
includes a maximum sales charge of 5.75% for Class A shares); that all income
dividends or capital gains distributions during the period are reinvested in
Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and distributions paid by
the Fund.

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

Total return is calculated separately for Class A, Class B and Class C shares.
Class A total return figures include the maximum sales charge of 5.75%; Class B
and Class C total return figures include any applicable contingent deferred
sales charge. Because of the differences in sales charges and distribution fees,
the total returns for each of the classes will differ.

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

42
<PAGE> 43

Fund. Distribution rate is a measure of the level of income and short-term
capital gain dividends, if any, distributed for a specified period. It differs
from yield, which is a measure of the income actually earned by, 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.

In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds or with the Consumer Price Index, Dow Jones
Industrial Average, Standard & Poor's, or NASDAQ, other appropriate indices of
investment securities, or with investment or savings vehicles. The performance
information may also include evaluations of the Fund published by nationally
recognized ranking services and by financial publications that are nationally
recognized, such as Business Week, Forbes, Fortune, Institutional Investor,
Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money, Mutual
Fund Forecaster, Stanger's Investment Advisor, USA Today, U.S. News & World
Report and The Wall Street Journal. Such comparative performance information
will be stated in the same terms in which the comparative data or indices are
stated. 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. For these
purposes, the performance of the Fund, as well as the performance of other
mutual funds or indices, do not reflect sales charges, the inclusion of which
would reduce Fund performance. The Fund will include performance data for Class
A, Class B and Class C shares of the Fund in any advertisement or information
including performance data of the Fund.

The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.

The Fund's Annual Report contains additional performance information. A copy
of the Annual Report may be obtained without charge by calling or writing the
Fund at the telephone number and address printed on the cover page of this
Prospectus.

43
<PAGE> 44

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

The Fund was originally incorporated in Delaware on August 14, 1957 and
reincorporated by merger into a Maryland Corporation on October 22, 1991. The
Fund was then reorganized on August 18, 1995 under the laws of the state of
Delaware as a business entity commonly known as a "Delaware business trust." It
is authorized to issue an unlimited number of Class A, Class B and Class C
shares of beneficial interest of $0.01 par value. Other classes of shares may be
established from time to time in accordance with provisions of the Fund's
Declaration of Trust. Shares issued by the Fund are fully paid, non-assessable
and have no preemptive or conversion rights.

The Fund currently offers three classes, designated Class A shares, Class B
shares and Class C shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."

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

The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.

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

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

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may

44
<PAGE> 45

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.

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.

45
<PAGE> 46
<TABLE>

<S> <C>
VAN KAMPEN AMERICAN CAPITAL
EQUITY INCOME FUND
------------------
2800 Post Oak Blvd.
Houston, TX 77056

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

Investment Adviser

VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Blvd.
Houston, TX 77056

Distributor

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
EXISTING SHAREHOLDERS-- Oakbrook Terrace, IL 60181
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL Transfer Agent
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666 ACCESS INVESTOR SERVICES, INC.
PROSPECTIVE INVESTORS--CALL Kansas City, MO 64141-9256
YOUR BROKER OR (800) 421-5666 Custodian

DEALERS--FOR DEALER STATE STREET BANK AND
INFORMATION, SELLING TRUST COMPANY
AGREEMENTS, WIRE ORDERS, 225 Franklin Street, P.O. Box 1713
OR REDEMPTIONS CALL THE Boston, MA 02105-1713
DISTRIBUTOR'S TOLL-FREE Attn: Van Kampen American Capital Funds
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND 400 South Hope Street
DEALER INQUIRIES THROUGH Los Angeles, CA 90071
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 772-8889 Independent Accountants

FOR TELEPHONE TRANSACTIONS PRICE WATERHOUSE LLP
DIAL (800) 847-2424 1201 Louisiana, Suite 2900

</TABLE>

<PAGE> 47

EQUITY INCOME FUND

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

P R O S P E C T U S

AUGUST 21, 1995

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

VAN KAMPEN AMERICAN CAPITAL

------------------------------------------------------------------------
<PAGE> 48

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
AUGUST 21, 1995

This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated August 21,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION................................................................... 2
INVESTMENT RESTRICTIONS............................................................... 3
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS........................................ 5
PORTFOLIO TURNOVER.................................................................... 10
SECURITIES OF FOREIGN ISSUERS......................................................... 10
REPURCHASE AGREEMENTS................................................................. 10
TRUSTEES AND EXECUTIVE OFFICERS....................................................... 11
INVESTMENT ADVISORY AGREEMENT......................................................... 15
DISTRIBUTOR........................................................................... 16
DISTRIBUTION PLANS.................................................................... 17
TRANSFER AGENT........................................................................ 18
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 18
DETERMINATION OF NET ASSET VALUE...................................................... 20
PURCHASE AND REDEMPTION OF SHARES..................................................... 20
EXCHANGE PRIVILEGE.................................................................... 24
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES............................................ 24
FUND PERFORMANCE...................................................................... 26
OTHER INFORMATION..................................................................... 27
FINANCIAL STATEMENTS.................................................................. 27
</TABLE>

<PAGE> 49

GENERAL INFORMATION

Van Kampen American Capital Equity Income Fund (the "Fund") was originally
incorporated in Delaware on August 14, 1957. On July 2, 1990, the Fund's name
was changed from Provident Fund for Income, Inc. to American Capital Equity
Income Fund, Inc. The Fund was reincorporated in Maryland on October 22, 1991
and reorganized under the laws of Delaware August 18, 1995.

Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly owned subsidiaries of Van Kampen
American Capital Inc. ("VKAC"), which 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
VKAC own, in the aggregate, not more than seven percent of the common stock of
VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional eleven percent of the common stock of VK/AC Holding,
Inc.

VKAC 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, July 1995. VKAC's roots in money
management extend back to 1926. Today, VKAC manages or supervises more than $50
billion in mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to VKAC in more than 2 million investor accounts. VKAC
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.

VKAC equity fund philosophy is to normally remain fully invested and
diversified across many industries to achieve consistent long-term returns.

VKAC uses a four-step investment process designed to attempt to produce
consistently good short-term results, which should help lead to superior
long-term performance.

Fully Invested: Money invested in a VKAC stock fund will normally be fully
invested in the market to attempt to maximize the potential for long-term
returns. The importance of being fully invested can be illustrated by the
following comparison. By missing fewer than four percent of the months during
the past 68 years, the value of one dollar invested in 1926 was $11.57 at the
end of 1994, compared to $810.54 for one dollar that was invested for the entire
period (Source: Micropal, Inc.). During the most recent five-year period
(1990-1994), the average annual total return for stocks, as measured by the
Standard and Poor's 500 Stock Index, a broad-based, unmanaged index, was 8.87
percent. However, the average annual return for the S&P 500 for the same period
excluding the 20 best days for stock market performance, was just 0.67 percent.
Of course, past performance is no guarantee of future results.

Widely Varied: A widely varied portfolio usually reduces risk and increases
relative stability. Since VKAC's goal is consistency, a widely varied portfolio
across industries is emphasized. VKAC stock funds are varied both in terms of
the number of industries and the number of stocks within each industry in which
they invest. Generally, the stock funds invest in 12 broad economic sectors, and
in many individual stocks within each sector.

Clearly Defined: The basic characteristics of VKAC funds are determined by
a pre-defined profile which remains constant over time.

Blended Investment Style: Market conditions are constantly changing, which
means the stocks that perform well should be expected to change. A rigid
investment style might cause an investor to suffer when

2
<PAGE> 50

certain types of stocks lose favor with the market. The two most common
investment styles are growth, which emphasizes companies that are projected to
experience rapid growth in earnings, and value, which focuses on companies whose
stock is selling for less than the company's net worth. At VKAC, our style is
blended between growth and value on a fund-specific basis. The results of our
approach are constantly evaluated and compared to other similar funds. Although
past performance is no guarantee of future results, VKAC remains committed to
our belief that this approach should help maximize potential for long-term
returns.

As of July 14, 1995, no person was known by the Fund to own beneficially as
much as five percent of the Class A, Class B or Class C shares. As of July 14,
1995, no one person was known to own of record 5% or more of the outstanding
Class A, Class B or Class C shares of the Fund except as follows:

<TABLE>
<CAPTION>
CLASS OF PERCENTAGE OF
NAME AND ADDRESS OF HOLDER SHARES OWNERSHIP
-------------------------------------------------------------- -------- -------------
<S> <C> <C>
Smith Barney Inc. Class B 12.73%
22nd Floor Class C 31.49%
388 Greenwich Street
New York, NY 10013-2375

National Financial Services, Inc. Class B 9.73%
One World Financial Center Class C 7.37%
200 Liberty
New York, NY 10281-1003

Van Kampen American Capital Trust Company Class A 24.35%
2800 Post Oak Blvd. Class B 29.72%
Houston, TX 77056 Class C 9.33%

Merrill Lynch Pierce Class C 13.84%
Fenner & Smith, Inc.
Mutual Fund Operations
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
</TABLE>

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

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions which, along with its
investment objectives, cannot be changed without approval by the holders of a
majority of its outstanding shares. Such majority is defined by the Investment
Company Act of 1940 (the "1940 Act") as the lesser of (i) 67% or more of the
voting securities present at the meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or (ii) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities. These restrictions provide that the Fund shall not:

1. Invest more than five percent of its assets in the securities of any
one issuer (except the United States Government) or purchase more than
ten percent of the outstanding voting securities of any one issuer.
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 Securities and Exchange Commission exempting the Fund from the
limitations imposed by Section 12(d)(1) of the Investment Company Act
of 1940;

2. Borrow money, except for a temporary purpose and then not in excess of
ten percent of its net assets taken at cost or market, whichever is
lower, and may not pledge more than 15% of gross assets taken at cost
to secure such borrowings; such borrowings in excess of five percent
may be made from banks only. The Fund will not purchase additional
securities while any such borrowings exceed five percent

3
<PAGE> 51

of the Fund's total assets. Notwithstanding the foregoing, the Fund may
engage in transactions in options, futures contracts and related
options, segregate or deposit assets to cover or secure options
written, and make margin deposits or payments for futures contracts and
related options;

3. Purchase securities on margin, sell securities short, or act as an
underwriter of securities except to the extent that in selling
restricted securities the Fund may be deemed to be an underwriter for
purposes of the Securities Act of 1933, but the Fund may engage in
transactions in options, futures contracts and related options and make
margin deposits and payments in connection therewith.

As used herein, "restricted securities" means securities acquired under
circumstances in which the Fund might not be free to sell such
securities without being deemed an underwriter for purposes of the
Securities Act of 1933 and without registration of such securities
under that Act. Where registration is required, the Fund may have to
bear the expense of registration and a considerable period may elapse
between the time when a decision is made to sell such securities and
the effectiveness of the Registration Statement. The Fund's position in
restricted securities may adversely affect the liquidity and
marketability of such securities and the Fund may not be able to
dispose of its holding in these securities at reasonable price levels;

4. Purchase or sell commodities or commodities futures, except that the
Fund may enter into transactions in futures contracts or related
options;

5. Make loans to any individual;

6. Invest in securities of other investment companies except at customary
brokerage commissions or in connection with mergers, consolidations or
exchange offers or to acquire shares of other open-end investment
companies to the extent permitted by rule or order of the Securities
and Exchange Commission exempting the Fund from the limitations imposed
by Section 12(d)(1) of the Investment Company Act of 1940;

7. Purchase or retain securities of a company if any officer or director
of the Fund or the investment adviser owns beneficially more than
one-half of one percent of the securities of such company and together
own more than five percent of the securities of such company;

8. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than ten percent of the Fund's assets would be invested in such
securities. Notwithstanding the foregoing, 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;

9. Invest more than ten percent of its net assets in real estate, but the
Fund may purchase securities issued by real estate investment trusts
and corporations engaged primarily in real estate;

10. Invest more than five percent of its assets in companies having a
record, together with predecessors, of less than three years continuous
operation; 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;

11. Invest in companies for the purpose of exercising control of
management;

12. Concentrate its investments in any single group or type of securities
except that it may, on occasion, invest up to 25% of its assets in any
one 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; or

13. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making
and collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts, forward commitments and other investment strategies and
instruments that would be considered "senior securities" but for the
maintenance by the Fund of a segregated account with its custodian or
some other form of "cover."

4
<PAGE> 52

Short-term trading is not the policy of the Fund, although a subsequent
change in the circumstances of a company, an industry, the market or the economy
may indicate that the sale of a security is desirable.

The Fund has undertaken to a certain state not to invest more than ten
percent of its net assets in Van Kampen American Capital Small Capitalization
Fund until it complies with certain NASAA regulations. In addition, commitments
have been made to certain states that, while the Fund's shares are registered
for sale there, the Fund shall not purchase more than ten percent of the
securities (voting or non-voting) of any one issuer; deal in puts, calls,
straddles or other forms of options; invest more than two percent of its net
assets in warrants; purchase securities of foreign issuers if such a purchase
would cause the Fund's investments in all such issuers, taken at cost, to exceed
15% of the value of its total assets; invest in real estate, but the Fund has
reserved the right to purchase securities issued by real estate investment
trusts and corporations engaged primarily in real estate; or invest in interests
in oil, gas, or other mineral exploration or development programs. The Fund does
not presently intend to engage in short sales against the box. Although the Fund
has the right to pledge, mortgage or hypothecate its assets, for purposes of
compliance with certain state statutes or investment restrictions, it will not
pledge, mortgage or hypothecate its portfolio securities to the extent that at
any time the percentage of pledged securities plus the sales load will exceed
ten percent of the offering price of the Fund's shares.

Consistent with its investment objectives, the Fund may make additional
commitments more restrictive than its fundamental policies. Should the Fund
determine in the future that a commitment is no longer in the best interests of
the Fund and its shareholders, it will revoke its commitment by withdrawing its
shares from sale in the state to which the commitment was made.

The Fund has an operating policy, which may be amended by its Trustees,
that the Fund shall not invest more than ten percent of its net assets
(determined at the time of investment) in illiquid securities and repurchase
agreements that have a maturity of longer than seven days.

OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS

WRITING CALL AND PUT OPTIONS

Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities is likely to result in higher
portfolio turnover.

Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security for the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis, which means that, at all times during the
option period, the Fund would own or have the right to acquire securities of the
type that it would be obligated to deliver if any outstanding option were
exercised.

The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash, cash
equivalents or U.S. Government securities in an amount of not less than the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.

Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.

5
<PAGE> 53

The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer of an option only if a liquid secondary
market exists for options of that series, but there is no assurance that such a
market will exist, particularly in the case of over-the-counter options, since
they can be closed out only with the other party to the transaction.
Alternatively, the Fund could purchase an offsetting option, which would not
close out its position as a writer, but would provide an asset of equal value to
its obligation under the option written. If the Fund is not able to enter into a
closing purchase transaction or to purchase an offsetting option with respect to
an option it has written, it will be required to maintain the securities subject
to the call or the collateral underlying the put until a closing purchase
transaction can be entered into (or the option is exercised or expires), even
though it might not be advantageous to do so.

Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.

Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others, regardless of whether such options are written on one or
more accounts or through one or more brokers. An exchange may order the
liquidation of positions found to be in violation of those limits, and it may
impose other sanctions or restrictions. These position limits may restrict the
number of options the Fund may be able to write.

PURCHASING CALL AND PUT OPTIONS

The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.

Conversely, put options could be purchased to protect (i.e., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. Alternatively, put options could be purchased
for capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options.

In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.

OPTIONS ON STOCK INDEXES

Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount.

Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes

6
<PAGE> 54

are also based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. A stock index fluctuates
with changes in the market values of the stocks included in the index. Options
are currently traded on The Chicago Board Options Exchange, the American Stock
Exchange and other exchanges.

Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the options expire unexercised.

FUTURES CONTRACTS

The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund is exempt from
registration as a "commodity pool."

A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.

An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.

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.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalent or liquid high
grade debt securities equal to a percentage (which will normally range between
two and ten percent) of the contract amount. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.

For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to the
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the

7
<PAGE> 55

underlying security or index declines, the position is less valuable, and the
Fund is required to make a variation margin payment to the broker.

At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.

Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs.

In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options futures or related options, the Fund could experience
delays and/or losses in liquidating open positions purchased and/or incur a loss
of all or part of its margin deposits with the broker. Transactions are entered
into by the Fund only with brokers or financial institutions deemed creditworthy
by the Adviser.

Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.

There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.

There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.

8
<PAGE> 56

There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.

Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.

CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or that they meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to minimize leverage in connection with the purchase of futures contracts
by the Fund, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian.

OPTIONS ON FUTURES CONTRACTS

The Fund could also purchase and write options on futures contracts. 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 (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as, it could sell a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts would be intended to serve the same purpose as the actual
purchase of the futures contract.

Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.

ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS

Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the

9
<PAGE> 57

same or different Exchanges or are held or written on one or more accounts or
through one or more brokers). Option positions of all investment companies
advised by the Adviser are combined for purposes of these limits. An Exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.

Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.

PORTFOLIO TURNOVER

The Fund's annual portfolio turnover rate is shown in the table of
Financial Highlights in the Prospectus. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for a fiscal year by the average monthly value of the portfolio securities
during such fiscal year. Securities maturing in one year or less at the time of
acquisition are not included in this computation. The portfolio turnover rate
may vary greatly from year to year and within a year. Greater portfolio activity
increases the Fund's transaction costs, including brokerage commissions. To the
extent turnover results in realization of gains on securities held less than six
months, shareholders are subject to taxes at ordinary income rates.

SECURITIES OF FOREIGN ISSUERS

The Fund may invest up to 15% of the value of its total assets in
securities of foreign governments and companies. Such securities may be subject
to foreign government taxes which would reduce the income yield on such
securities. Foreign investments involve certain risks, such as political or
economic instability of the issuer or of the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations or of the United States
Government. In addition, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing and financial reporting, standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, and, with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Finally, in the
event of a default on any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
1940 Act. The Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of a custodian or
bank acting as agent. The seller under a repurchase agreement will be required
to maintain the value of the underlying securities marked-to-market daily at not

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<PAGE> 58

less than the repurchase price. The underlying securities (normally securities
of the U.S. Government, or its agencies and instrumentalities), may have
maturity dates exceeding one year. The Fund does not bear the risk of a decline
in value of the underlying security unless the seller defaults under its
repurchase obligation. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Fund could experience both delays in liquidating
the underlying securities and loss including: (a) possible decline in the value
of the underlying security during the period while the Fund seeks to enforce its
rights thereto, (b) possible lack of access to income on the underlying security
during this period, and (c) expenses of enforcing its rights. The Fund will not
invest in repurchase agreements maturing in more than seven days if any such
investments, together with any other illiquid security held by the Fund, exceeds
ten percent of the value of its net assets.

TRUSTEES AND EXECUTIVE OFFICERS

The Fund's Trustees and executive officers and their principal occupations
for the past five years are listed below.

TRUSTEES

<TABLE>
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall, Suite 200 President of MDT Corporation, a company which develops,
1009 Slater Road manufactures, markets and services medical and scientific
Harrisville, NC 27560 equipment. A Trustee of each of the Van Kampen American
Age: 62 Capital Funds.

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

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

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

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

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<PAGE> 59

<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
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen American
Capital Funds and Chairman of each Van Kampen American
Capital Fund advised by Van Kampen American Capital
Advisory Corp.

Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.

Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive Vice
President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director, Trustee or Managing General Partner of
each of the Van Kampen American Capital Funds and other
open-end investment companies and closed-end investment
companies advised by the Adviser and its affiliates.

David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital. A Director and the Second
Vice President of International Institute of Los Angeles.
A Trustee of each of the Van Kampen American Capital
Funds.

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

Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 62 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A Trustee of each of the Van Kampen American Capital
Funds.

Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 71 Capital Funds and Chairman of each Van Kampen American
Capital Fund advised by the Adviser.
</TABLE>

12
<PAGE> 60

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
<S> <C>
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.

William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A 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 Investment Company Act of 1940). Mr. Powell is an interested person of
the Adviser and the Fund by reason of his position with the Adviser. Mr.
Sheehan and Mr. Whalen are interested persons of the Adviser and the Fund by
reason of their firms having acted as legal counsel to the Adviser or an
affiliate thereof.

The Fund's officers other than Messrs. McDonnell and Nyberg are located at
2800 Post Oak Blvd., Houston, Texas 77056. Messrs. McDonnell and Nyberg are
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

OFFICERS

James A. Gilligan........ Vice President Vice President - Portfolio Manager of the
Age: 37 Adviser; formerly, Security Analyst of the
Adviser.

Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 35 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.

Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser. Director of VK/AC
Holding, Inc. and Van Kampen American
Capital.

Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 48 Treasurer investment companies advised by the
Adviser.
</TABLE>

13
<PAGE> 61

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS DURING
NAME AND AGE OFFICES WITH FUND PAST 5 YEARS
------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
Age: 42 and Secretary of Van Kampen American
Capital. Executive Vice President and a
Director of the Distributor. Executive Vice
President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.

Alan T. Sachtleben....... Vice President Executive Vice President and Director of
Age: 53 the Adviser, Executive Vice President of
VK/AC Holding, Inc. and Van Kampen American
Capital.

J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.

Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser;
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc. Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company.
Executive Vice President and Director of
ACCESS.
</TABLE>

The Trustees and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto and Woodside served as Trustees of the Fund during
its last fiscal year. During the fiscal year ended December 31, 1994, the
Trustees not affiliated with the Adviser received as a group $16,513 in
directors' fees from the Fund in addition to certain out-of-pocket expenses.
Such Trustees also received compensation for serving as Trustees of other
investment companies advised by the Adviser. For legal services rendered during
the fiscal year ended December 31, 1994, the Fund paid legal fees of $10,194 to
the law firm of O'Melveny & Myers of which Mr. Sheehan is of counsel. The firm
also serves as legal counsel to other Van Kampen American Capital Funds.

Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as trustees is set forth
below. The compensation shown for the Fund is for the most recent fiscal year,
and the total compensation shown for the Fund and other related mutual funds is
for the calendar year ended December 31, 1994. Mr. Powell is not compensated for
his service as Trustee, because of his affiliation with the Adviser.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION
OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM
ACCRUED REGISTRANT
AS AND
AGGREGATE PART FUND
COMPENSATION OF COMPLEX
FROM FUND PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
------------------------------------------------ ------ --- -------
<S> <C> <C> <C>
J. Miles Branagan............................... $2,210 -0- $64,000
Dr. Richard E. Caruso(3)........................ 2,205(2) -0- 64,000
Dr. Roger Hilsman............................... 2,280 -0- 66,000
David Rees(3)................................... 2,210 -0- 64,000
Lawrence J. Sheehan............................. 2,315 -0- 67,000
Dr. Fernando Sisto(3)........................... 2,840(2) -0- 82,000
William S. Woodside(4).......................... 1,910 -0- 18,000
</TABLE>

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

(1) Represents 29 investment company portfolios in the fund complex.

14
<PAGE> 62

(2) Amount reflects deferred compensation of $2,135 and $1,415 for Messrs.
Caruso and Sisto, respectively.

(3) Messrs. Caruso, Rees and Sisto have deferred compensation in the past. The
cumulative deferred compensation paid by the Fund is as follows: Caruso,
$5,296; Rees, $17,270; Sisto, $7,257.

(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, with respect to the second and fourth columns, $645
and $36,000, respectively, was paid by the Adviser directly.

(5) Includes the following amounts for which the various funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000. (Mr. Woodside was
paid $36,000 directly by the Adviser as discussed in Footnote 4 above).

Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $1,476 and a
meeting fee of $140 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be erased by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objectives. The Adviser also furnishes at no cost to the Fund (except
as noted herein) the services of sufficient executive and clerical personnel for
the Fund as are necessary to prepare registration statements, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.

Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction. Charges are
allocated among the investment companies advised or subadvised by the Adviser
based in part on the number of portfolios and in part on the relative assets of
the portfolios. A portion of these amounts are paid to the Adviser or its parent
in reimbursement of personnel, office space facilities and equipment costs
attributable to the provision of accounting services to the Fund. The services
provided by the Adviser are at cost. The Fund also pays shareholder service
agency fees, distribution fees, service fees, custodian fees, legal and auditing
fees, the costs of reports to shareholders and all other ordinary expenses not
specifically assumed by the Adviser.

Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at an annual
rate of: 0.50% on the first $150 million of average net assets; 0.45% on the
next $100 million of average net assets; 0.40% on the next $100 million of
average net assets; and 0.35% on the average net assets in excess of $350
million.

The average net asset value for purposes of computing the advisory fees is
determined by taking the average of all of the determinations of net asset value
for each business day during a given calendar month. Such fee is payable for
each calendar month as soon as practicable after the end of that month. The fee

15
<PAGE> 63

payable to the Adviser is reduced by any commissions, tender solicitation and
other fees, brokerage or similar payments received by the Adviser or any other
direct or indirect majority-owned subsidiary of VK/AC Holding, Inc., in
connection with the purchase and sale of portfolio investments of the Fund, less
any direct expenses incurred by such subsidiary of VK/AC Holding, Inc. in
connection with obtaining such payments. The Adviser agrees to use its best
efforts to recapture tender solicitation fees and exchange offer fees for the
Fund's benefit, and to advise the Trustees of the Fund of any other commissions,
fees, brokerage or similar payments which may be possible under applicable laws
for the Adviser or any other direct or indirect majority-owned subsidiary of
VK/AC Holding, Inc., to receive in connection with the Fund's portfolio
transactions or other arrangements which may benefit the Fund.

The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitations applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest and taxes, (2) brokerage commissions, (3)
certain litigation and indemnification expenses as described in the Advisory
Agreement and (4) payments made by the Fund pursuant to the Distribution Plans.
The Advisory Agreement also provides that the Adviser shall not be liable to the
Fund for any actions or omissions if it acted in good faith without negligence
or misconduct.

The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on not more than 60 days', nor less than 30 days' written notice.

During the fiscal years ended December 31, 1992, 1993 and 1994 the Adviser
received $561,105, $1,016,260 and $1,875,881 in advisory fees from the Fund. For
such periods the Fund paid $57,671, $92,453 and $97,630, respectively, for
accounting services. A substantial portion of these amounts was paid to the
Adviser in reimbursement of personnel, facilities and equipment costs
attributable to the provision of accounting services to the Fund.

DISTRIBUTOR

The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
has the exclusive right to distribute shares of the Fund through affiliated and
unaffiliated dealers. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay for
only such shares of the Fund as may be sold to the public. The Distributor is
not obligated to sell any stated number of shares. The Distributor bears the
cost of printing (but not typesetting) prospectuses used in connection with this
offering and the cost and expense of supplemental sales literature, promotion
and advertising. The Underwriting Agreement is renewable from year to year if
approved (a) by the Fund's Trustees or by a vote of a majority of the Fund's
outstanding voting securities and (b) by the affirmative vote of a majority of
Trustees who are not parties to the Underwriting Agreement or interested persons
of any party, by votes cast in person at a meeting called for such purpose. The
Underwriting Agreement provides that it will terminate if assigned, and that it
may be terminated without penalty by either party on 60 days' written notice.

During the fiscal years ended December 31, 1992, 1993 and 1994 total
underwriting commissions on the sale of shares of the Fund were $409,192,
$1,292,157 and $1,722,966, respectively. Of such totals, the amount retained by
the Distributor was $31,801, $177,667 and $183,464, respectively. The remainder
was reallowed to dealers. Of such dealer reallowances, $79,328, $162,924 and
$168,108, respectively, was received by Advantage Capital Corporation, an
affiliated dealer of the Distributor.

16
<PAGE> 64

DISTRIBUTION PLANS

The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan," "Class B Plan" or "Class C
Plan," respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").

The Trustees have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to four percent of the purchase price of Class B
shares purchased by the clients of broker-dealers and other Service
Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, (5) advertising and promotion expenses, including conducting and
organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest income thereon computed at the
three-month LIBOR rate plus one and one half percent compounded quarterly on the
unreimbursed distribution expenses. With respect to the Class C Plan, authorized
payments by the Fund also include payments at an annual rate of up to 0.75% of
the net asset of the Class C shares to reimburse the Distributor for (1) upfront
commissions and transaction fees of up to 0.75% of the purchase price of Class C
shares purchased by the clients of broker-dealers and other Service
Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, (5) advertising and promotion
expenses, including conducting and organizing sales seminars, marketing support
salaries and bonuses, and travel-related expenses, and (6) interest income
thereon computed at the three-month LIBOR rate plus one and one half percent
compounded quarterly on the unreimbursed distribution expenses. Such
reimbursements are subject to the maximum sales charge limits specified by the
NASD for asset-based charges.

Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. In addition,
state securities laws on this issue 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.

As required by Rule 12b-1 under the 1940 Act, each Plan and the form of
Servicing Agreement were approved by the Trustees, including a majority of the
Trustees who are not affiliated persons (as defined in the 1940 Act) of the Fund
and who have no direct or indirect financial interest in the operation of any of
the Plans or in any agreements related to each Plan ("Independent Trustees"). In
approving each Plan in accordance

17
<PAGE> 65

with the requirements of Rule 12b-1, the Trustees determined that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.

Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.

Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting shares of the Fund.
Any change in any of the Plans that would materially increase the distribution
or service expenses borne by the Fund requires shareholder approval voting
separately by class otherwise, it may be amended by a majority of the Directors,
including a majority of the Independent Trustees, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. So long as the
Plan is in effect, the selection or nomination of the Independent Trustees is
committed to the discretion of the Independent Trustees.

For the fiscal year ended December 31, 1994, the Fund's aggregate expenses
under the Class A Plan were $450,111 or .21% of the Class A shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for
payments made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the fiscal year ended December 31, 1994, the
Fund's aggregate expenses under the Class B Plan were $1,927,432 or 1.00% of the
Class B shares' average daily net assets. Such expenses were paid to reimburse
the Distributor for the following payments: $1,445,574 for commissions and
transaction fees paid to broker-dealers and other Service Organizations in
respect of sales of Class B shares of the Fund and $481,858 for fees paid to
Service Organizations for servicing Class B shareholders and administering the
Class B Plan. For the fiscal year ended December 31, 1994, the unreimbursed
expenses incurred by the Distributor under the Class B Plan and carried forward
were approximately $9.0 million. From the period July 6, 1994 through December
31, 1994, the Fund's aggregate expenses under the Class C Plan were $217,701 or
1.00% (not annualized) of the Class C shares' average daily net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$163,276 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class C shares of the Fund and
$54,425 for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class C Plan. For the fiscal year ended
December 31, 1994, the unreimbursed expenses incurred by the Distributor under
the Class C Plan and carried forward were approximately $315,000.

TRANSFER AGENT

For the fiscal years ended December 31, 1992, 1993 and 1994, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $137,698, $327,953 and $791,935, respectively, for these
services. These services are provided at cost plus a profit.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions, if any, paid on such transactions. It is the policy of the Adviser
to seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser. Consistent with the Rules of Fair Practice
of the NASD and subject to seeking best execution and such other policies as the
Trustees may determine, the Adviser may consider sales of shares of

18
<PAGE> 66

the Fund and of the other Van Kampen American Capital mutual funds as a factor
in the selection of firms to execute portfolio transactions for the Fund.

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).

Pursuant to provisions of the Advisory Agreement, the Fund's Trustees has
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Fund. The
Adviser undertakes that such higher commissions will not be paid by the Fund
unless (a) the Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Adviser's overall responsibilities with respect to the accounts as to which
it exercises investment discretion, (b) such payment is made in compliance with
the provisions of Section 28(e) and other applicable state and federal laws, and
(c) in the opinion of the Adviser, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the Fund over the long term.
The investment advisory fee paid by the Fund under the Advisory Agreement is not
reduced as a result of the Adviser's receipt of research services.

The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Fund. In the opinion of the Adviser, the
benefits from research services to each of the accounts (including the Fund)
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.

The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Adviser are the respective investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.

The Adviser's brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Trustees who are not affiliated
persons (as defined in the 1940 Act) of the Adviser.

Brokerage commissions paid by the Fund on portfolio transactions for the
fiscal years ended December 31, 1992, 1993 and 1994 totalled $251,531, $680,869
and $1,190,765, respectively. During the year ended December 31, 1994 the Fund
paid $393,568 in brokerage commissions on transactions totalling $229,358,561 to
brokers selected primarily on the basis of research services provided to the
Adviser.

Prior to December 20, 1994, the Fund, from time to time, placed brokerage
transactions with brokers who were considered affiliated persons of the
Adviser's former parent, The Travelers Inc. ("Travelers"). Such affiliated
persons included Smith Barney, Inc. ("Smith Barney") and Robinson Humphrey, Inc.
("Robinson

19
<PAGE> 67

Humphrey"). In addition, from 1985 to September 30, 1992, Jefferies & Company,
Inc. ("Jefferies") was an affiliate of The Travelers Inc. (then Primerica
Corporation). The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction.

The Fund paid the following commissions to these brokers during the periods
shown :

<TABLE>
<CAPTION>
ROBINSON SMITH
HUMPHREY BARNEY JEFFERIES
-------- ------- ---------
<S> <C> <C> <C>
Commissions Paid:
Fiscal 1992 -- $21,576 $ 567
Fiscal 1993 -- $51,175 --
Fiscal 1994 $1,400 $68,439
Fiscal 1994 Percentages:
Commissions with affiliates to total commissions .12% 5.75% --
Value of transactions with affiliates to total transactions .05 8.45 --
</TABLE>

DETERMINATION OF NET ASSET VALUE

The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. New York time) on each
business day on which the Exchange is open. The Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Such computation is made by using prices as of the close of trading on the
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, (iii) valuing all other over-the-counter securities for which market
quotations are available at the mean between the most recent bid and asked
quotations supplied by NASDAQ or broker-dealers, and (iv) 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. Short-term
investments are valued in the manner described in Note 2 to the Financial
Statements included in this Statement of Additional Information.

The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.

PURCHASE AND REDEMPTION OF SHARES

The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."

PURCHASE OF SHARES

Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized dealers, including Advantage Capital
Corporation.

ALTERNATIVE SALES ARRANGEMENTS

The Fund issues three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)

20
<PAGE> 68

resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.

During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.

INVESTMENTS BY MAIL

A shareholder investment account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of $500 or more, in the form of a check
payable to the Fund, must accompany the application. This minimum may be waived
by the Distributor for plans involving continuing investments. Subsequent
investments of $25 or more may be mailed directly to ACCESS. All such
investments are made at the public offering price of Fund shares next computed
following receipt of payment by ACCESS. Confirmations of the opening of an
account and of all subsequent transactions in the account are forwarded by
ACCESS to the investor's dealer of record, unless another dealer is designated.

In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.

CUMULATIVE PURCHASE DISCOUNT

The reduced sales charges reflected in the sales charge table as shown in
the Prospectus under "Purchase of Shares -- Sales Charge Table" apply to
purchases of Class A shares of the Fund where the aggregate investment is
$50,000 or more. For purposes of determining eligibility for volume discounts,
spouses and their minor children are treated as a single purchaser, as is a
director or other fiduciary purchasing for a single fiduciary account. An
aggregate investment includes all shares of the Fund and all shares of certain
other participating Van Kampen American Capital mutual funds described in the
Prospectus (the "Participating Funds"), which have been previously purchased and
are still owned, plus the shares being purchased. The current offering price is
used to determine the value of all such shares. If, for example, an investor has
previously purchased and still holds Class A shares of the Fund and shares of
other Participating Funds having a current offering price of $25,000 and that
person purchases $30,000 of additional Class A shares of the Fund, the charge
applicable to the $30,000 purchase would be 4.75% of the offering price. The
same reduction is applicable to purchases under a Letter of Intent as described
in the next paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN
ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE
BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN
SUCH AN ORDER IS PLACED BY MAIL. The reduced sales charge will not be applied if
such notification is not furnished at the time of the order. The reduced sales
charge will also not be applied should a review of the records of the
Distributor or ACCESS fail to confirm representations concerning the investor's
holdings.

LETTER OF INTENT

Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount," made pursuant to the Letter of Intent and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totalling five percent of the dollar amount of the Letter of Intent are
held by ACCESS in the name of the shareholder. A Letter of Intent may be
back-dated up to 90 days in order that any investments made during this 90-day
period, valued at the investor's cost, can become subject to the Letter of
Intent. The Letter of Intent does not obligate the investor to purchase the
indicated amount. In the event the Letter of Intent goal is not achieved within
the 13-month period, the investor is required to pay the

21
<PAGE> 69

difference between sales charges otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the investor in shares of the Fund, the amount of excess sales
charge, if any, paid during the 13-month period.

CONTINGENT DEFERRED SALES CHARGE -- CLASS A

For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC - Class A") of one percent is imposed in the event of
certain redemptions within one year of the purchase. If a CDSC - Class A is
imposed upon redemption, the amount of the CDSC - Class A will be equal to the
lesser of one percent of the net asset value of the shares at the time of
purchase, or one percent of the net asset value of the shares at the time of
redemption.

The CDSC - Class A will only be imposed if a Qualified Purchaser redeems an
amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. The CDSC -
Class A will be waived in connection with redemptions by certain Qualified
Purchasers (e.g., in retirement plans qualified under Section 401(a) of the Code
and deferred compensation plans under Section 457 of the Code) required to
obtain funds to pay distributions to beneficiaries pursuant to the terms of the
plans. Such payments include, but are not limited to, death, disability,
retirement, or separation from service. No CDSC - Class A will be imposed on
exchanges between funds. For purposes of the CDSC - Class A, when shares of one
fund are exchanged for shares of another fund, the purchase date for the shares
of the fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC - Class A rather than a front-end load sales charge. In determining
whether a CDSC - Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.

Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of Van Kampen American Capital Reserve
Fund, Van Kampen American Capital Tax Free Money Fund and Van Kampen American
Capital Money Market Fund with shares of certain other participating funds
described as "Participating Funds" in the Prospectus.

As described in this Prospectus under "Redemption of Shares," redemptions
of Class B and Class C shares are subject to a contingent deferred sales charge.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGES ("CDSC - CLASS B
AND C")

The CDSC - Class B and C is waived on redemptions of Class B and Class C
shares in the circumstances described below:

(a) Redemption Upon Disability or Death

The Fund will waive the CDSC - Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. 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 death or disability before it determines to waive the CDSC - Class B and C.

22
<PAGE> 70

In cases of disability or death, the CDSC - Class B and C will be waived
where the decedent or 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 death or initial determination of disability.
This waiver of the CDSC - Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.

(b) Redemption in Connection with Certain Distributions from Retirement
Plans

The Fund will waive the CDSC - Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC - Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).

The Fund does not intend to waive the CDSC - Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

A shareholder may elect to participate in a systematic withdrawal plan (the
"Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC - Class B and C will be waived on
redemptions made under the Plan.

The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC - Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.

(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance

The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC - Class B and C
upon such involuntary redemption.

(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption

A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC - Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C shares of the same class of the Fund, provided that the
reinvestment is effected within 120 days after such redemption and the
shareholder has not previously exercised this reinvestment privilege with
respect to Class C shares of the Fund. Shares acquired in this manner will be
deemed to have the original cost and purchase date of the redeemed shares for
purposes of applying the CDSC - Class C to subsequent redemptions.

23
<PAGE> 71

(f) Redemption by Adviser

The Fund may waive the CDSC - Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

REDEMPTION OF SHARES

Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.

EXCHANGE PRIVILEGE

The following supplements the discussion of "Shareholder
Services - Exchange Privilege" in the Prospectus:

By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.

For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.

Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

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

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

The Fund's policy is to distribute substantially all of its taxable net
investment income in quarterly dividends to shareholders of Class A, Class B and
Class C shares. The per share dividends on Class B and Class C shares will be
lower than the per share dividends on Class A as a result of the distribution
fees and higher transfer agency fees applicable to the Class B and Class C
shares. The Fund intends to distribute to

24
<PAGE> 72

shareholders any taxable net realized capital gains for each class at least
annually. Taxable net realized capital gains are the excess, if any, of the
Fund's total profits on the sale of securities during the year over its total
losses on the sale of securities, including capital losses carried forward from
prior years in accordance with the tax laws. All income dividends and capital
gains distributions are reinvested in shares of the Fund at net asset value
without sales charge on the record date, except that any shareholder may
otherwise instruct ACCESS in writing and receive cash. Shareholders are informed
as to the sources of distributions at the time of payment.

The Fund has elected to be taxed as a regulated investment company under
Sections 851-855 of the Code. This means the Fund must pay all or substantially
all its taxable net investment income and taxable net realized capital gains to
shareholders and meet certain diversification and other requirements. By
qualifying as a regulated investment company, the Fund is not subject to Federal
income taxes to the extent it distributes its taxable net investment income and
taxable net realized capital gains. If for any taxable year the Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of its taxable income, including any net realized capital gains, would be
subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).

The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders at least 98% of its ordinary (net investment)
income for the twelve months ended December 31 plus 98% of its capital gains net
income for the twelve months ended October 31 of such calendar year. The Fund
intends to distribute sufficient amounts to avoid liability for the excise tax.

Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. A portion of the
dividends taxable as ordinary income qualify for the 70% dividends received
deduction for corporations. To qualify for the dividends received deduction, a
corporate shareholder must hold the shares on which the dividend is paid for
more than 45 days.

Dividends and distributions declared to shareholders of record after
September 30 of any year and paid before February 1 of the following year are
considered taxable income to shareholders on the record date even though paid in
the next year.

Distributions from long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held Fund
shares. Such distributions and distributions from short-term capital gains are
not eligible for the dividends received deduction referred to above. Any loss on
the sale of Fund shares held for less than six months is treated as a long-term
capital loss to the extent of any long-term capital gain distribution paid on
such shares, subject to an exception for losses incurred under certain
systematic withdrawal plans. All dividends and distributions are taxable to the
shareholder whether or not reinvested in shares. Shareholders are notified
annually by the Fund as to the federal tax status of dividends and distributions
paid by the Fund unless such amount is less than ten dollars in which case no
notice is provided.

If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized on
the basis of the subsequent shares.

Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
law. Non-resident shareholders are urged to consult their own tax adviser
concerning the applicability of the United States withholding tax.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

25
<PAGE> 73

Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.

BACK-UP WITHHOLDING

The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% "back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

The Code includes special rules applicable to certain listed options
(excluding equity options as defined in the Code), futures contracts, and
options on futures contracts which the Fund may write, purchase or sell. Such
options and contracts are classified as Section 1256 contracts under the Code.
The character of gain or loss resulting from the sale, disposition, closing out,
expiration or other termination of Section 1256 contracts is generally treated
as long-term capital gain or loss to the extent of 60 percent thereof and
short-term capital gain or loss to the extent of 40 percent thereof ("60/40 gain
or loss"). Such contracts, when held by the Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market").
Over-the-counter options are not classified as Section 1256 contracts and are
not subject to the mark-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. If
over-the-counter call options written, or over-the-counter put options
purchased, by the Fund are exercised, the gain or loss realized on the sale of
the underlying securities may be either short-term or long-term, depending on
the holding period of the securities. In determining the amount of gain or loss,
the sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.

Certain of the Fund's transactions in options, futures contracts, and
options on futures contracts, particularly its hedging transactions, may
constitute "straddles" which are defined in the Code as offsetting positions
with respect to personal property. A straddle in which at least one (but not
all) of the positions are Section 1256 contracts is a "mixed straddle" under the
Code if certain identification requirements are met.

The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.

The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code.

FUND PERFORMANCE

The Fund's average annual total return for Class A shares of the Fund
(computed in the manner described in the Prospectus) for the one-year,
five-year, and ten-year periods ended December 31, 1994 was -7.64%, 7.47% and
10.23%, respectively. The average annual total return for Class B shares of the
Fund (computed in the manner described in the Prospectus) for the one-year and
two-year eight-month periods ended December 31, 1994 was -7.35% and 6.76%,
respectively. The aggregate total return for Class C shares of the Fund
(computed in the manner described in the Prospectus) for the one-year and
eighteen-month

26
<PAGE> 74

periods ended December 31, 1994 was -3.63% and 3.55%, respectively. These
results are based on historical earnings and asset value fluctuations and are
not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objectives and policies as well as
the risks incurred in the Fund's investment practices. Future results will be
affected by changes in the general level of prices of common securities
available for purchase and sale by the Fund. The past one-year, five-year, and
ten-year periods have been ones of fluctuating common stock prices.

Total return is computed separately for Class A, Class B and Class C
shares.

From time to time the VKAC will announce the results of its monthly polls
of U.S. investor intentions -- the Van Kampen American Capital Index of Investor
Intentions and the Van Kampen American Capital Mutual Fund Index -- which polls
measure how Americans plan to use their money.

From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by Van Kampen American Capital in 1994.

The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Funds.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.

INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.

FINANCIAL STATEMENTS

The attached financial statements in the form in which they appear in the
Annual Report to Shareholders including the related report of Independent
Accountants on such financial statements is included in the Statement of
Additional Information.

The following information is not included in the Annual Report. The example
assumes a purchase of Class A shares of the Fund aggregating less than $50,000
subject to the schedule of sales charges set forth in the Prospectus at a price
based upon the net asset value of Class A shares of the Fund.

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Net Asset Value per Class A Share $ 5.16

Class A Per Share Sales Charge -- 5.75% of offering price
(6.10% of net asset value per share) $ .31
------
Class A Per Share Offering Price to the Public $ 5.47
</TABLE>

27
<PAGE> 75
INVESTMENT PORTFOLIO

December 31, 1994

<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 54.6%
CONSUMER DISTRIBUTION 2.4%
62,000 American Stores Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,666,250
29,000 Dayton Hudson Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,051,750
70,000 Limited, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,268,750
45,000 May Department Stores Co. . . . . . . . . . . . . . . . . . . . . . . . . . 1,518,750
*38,000 Michaels Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320,500
*59,000 Nine West Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,674,125
24,000 Nordstrom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,008,000
39,000 Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794,000
----------------
TOTAL CONSUMER DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 12,302,125
----------------
CONSUMER DURABLES 1.4%
68,000 Black & Decker Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,615,000
32,000 Daimler-Benz A.G., ADS . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576,000
28,000 Eastman Kodak Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,337,000
50,000 Echlin, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
32,000 Stanley Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,144,000
----------------
TOTAL CONSUMER DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . 7,172,000
----------------
CONSUMER NON-DURABLES 5.4%
43,000 Anheuser-Busch Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,187,625
33,000 Clorox Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,942,875
*81,000 Dr Pepper/Seven-Up Companies, Inc. . . . . . . . . . . . . . . . . . . . . 2,075,625
33,000 Hershey Foods Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,596,375
55,000 H.J. Heinz Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,021,250
46,600 Liz Claiborne, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786,375
154,000 Pet, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,041,500
59,000 Procter & Gamble Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,658,000
59,000 Ralston Purina Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,632,875
52,000 Reebok International, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 2,054,000
73,000 Rubbermaid, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,098,750
61,000 Sara Lee Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,540,250
100,000 U.S. Shoe Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,875,000
----------------
TOTAL CONSUMER NON-DURABLES . . . . . . . . . . . . . . . . . . . . . . . 27,510,500
----------------
CONSUMER SERVICES 2.8%
20,000 Capital Cities ABC, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,705,000
27,000 Dun & Bradstreet Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,485,000
36,000 Gaylord Entertainment Co., Class A . . . . . . . . . . . . . . . . . . . . 819,000
63,000 McDonald's Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,842,750
26,000 Omnicom Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345,500
35,000 Readers Digest Association, Inc. . . . . . . . . . . . . . . . . . . . . . 1,719,375
29,000 Tribune Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,587,750
41,000 Walt Disney Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,891,125
118,000 Wendy's International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1,696,250
----------------
TOTAL CONSUMER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 14,091,750
----------------
ENERGY 5.9%
39,000 Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,305,875
78,000 British Petroleum Co., PLC, ADR . . . . . . . . . . . . . . . . . . . . . . 6,230,250
83,000 Exxon Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,042,250
36,000 Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,033,000
203,000 Pacific Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,313,750
135,000 Panhandle Eastern Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,666,250
39,000 Royal Dutch Petroleum Co., ADR . . . . . . . . . . . . . . . . . . . . . . 4,192,500
122,000 USX-Marathon Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,997,750
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,781,625
----------------
</TABLE>

F-1
<PAGE> 76
INVESTMENT PORTFOLIO, CONTINUED

<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 9.0%
73,000 Ahmanson (H.F.) & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,177,125
53,000 American General Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,497,250
21,000 American International Group, Inc. . . . . . . . . . . . . . . . . . . . . 2,058,000
34,000 BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343,000
95,000 Bank of Boston Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,458,125
59,000 Beacon Properties Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121,000
56,000 Carr Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,008,000
101,000 Chemical Banking Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,623,375
35,000 CoreStates Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . 910,000
32,000 Crestar Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,204,000
119,000 DeBartolo Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,785,000
37,300 Equity Residential Properties Trust . . . . . . . . . . . . . . . . . . . . 1,119,000
36,000 Federal National Mortgage Association . . . . . . . . . . . . . . . . . . . 2,623,500
67,000 Federal Realty Investment Trust . . . . . . . . . . . . . . . . . . . . . . 1,381,875
60,000 First Bank System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,995,000
30,000 First Fidelity Bancorp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,346,250
12,000 General RE Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,485,000
28,000 Health Care Property Investments . . . . . . . . . . . . . . . . . . . . . 843,500
51,000 Liberty Property Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,875
79,000 Manufactured Home Communities, Inc. . . . . . . . . . . . . . . . . . . . . 1,570,125
47,000 Mid-America Apartment Communities, Inc. . . . . . . . . . . . . . . . . . . 1,257,250
30,000 NationsBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353,750
24,000 Post Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 756,000
61,000 RFS Hotel Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 892,125
34,000 Security Capital Industrial Trust . . . . . . . . . . . . . . . . . . . . . 578,000
47,000 St. Paul Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 2,103,250
37,000 Transamerica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,840,750
52,000 Weeks Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,137,500
48,000 Weingarten Realty Investors . . . . . . . . . . . . . . . . . . . . . . . . 1,818,000
17,000 Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,465,000
29,200 Winston Hotels, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,000
----------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,043,625
----------------
HEALTH CARE 6.4%
64,000 Abbott Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 2,088,000
*52,000 Amgen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,068,000
93,000 Baxter International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 2,627,250
57,000 Bristol-Myers Squibb Co. . . . . . . . . . . . . . . . . . . . . . . . . . 3,298,875
*27,000 Genentech, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,225,125
*41,000 Genetics Institute, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,476,000
41,700 Lilly (Eli) & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,736,563
104,000 Merck & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,965,000
45,000 Mylan Labs, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,215,000
*48,000 Nellcor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,584,000
19,000 Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,467,750
32,000 Schering Plough Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,368,000
103,000 Upjohn Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,167,250
31,000 Warner-Lambert Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,387,000
----------------
TOTAL HEALTH CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,673,813
----------------
PRODUCER MANUFACTURING 3.7%
69,000 Allied-Signal, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,346,000
101,000 Browning-Ferris Industries, Inc. . . . . . . . . . . . . . . . . . . . . . 2,865,875
34,000 Fluor Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,466,250
59,000 General Electric Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,009,000
38,000 Illinois Tool Works, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,662,500
97,000 Philips N.V., ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,849,375
24,000 United Technologies Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 1,509,000
*38,000 Varity Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,377,500
75,000 WMX Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,968,750
----------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . 19,054,250
----------------
</TABLE>

F-2
<PAGE> 77
INVESTMENT PORTFOLIO, CONTINUED

<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 3.0%
40,000 Ball Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,260,000
72,000 Bemis, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,728,000
53,000 Cabot Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,503,875
22,000 Dow Chemical Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,479,500
25,000 DuPont (E.I.) de Nemours & Co., Inc. . . . . . . . . . . . . . . . . . . . 1,406,250
41,000 Eastman Chemical Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,070,500
182,000 Ethyl Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,751,750
21,000 International Paper Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,582,875
34,000 Scott Paper Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,350,250
----------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES . . . . . . . . . . . . . . . . 15,133,000
----------------
TECHNOLOGY 4.8%
47,000 Adobe Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,398,250
39,000 Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,823,250
54,000 Computer Associates International, Inc. . . . . . . . . . . . . . . . . . . 2,619,000
*45,000 DSC Communications Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 1,614,375
17,000 E-System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707,625
92,000 International Business Machines Corp. . . . . . . . . . . . . . . . . . . . 6,762,000
37,000 Loral Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,401,375
12,000 McDonnell Douglas Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,704,000
51,000 Northern Telecom, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,702,125
41,000 Rockwell International Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,465,750
32,000 Xerox Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,168,000
----------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,365,750
----------------
UTILITIES 9.8%
43,000 AT&T Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,160,750
69,000 Bellsouth Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,734,625
134,000 Duke Power Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,108,750
98,200 General Public Utilities Corp. . . . . . . . . . . . . . . . . . . . . . . 2,577,750
57,000 GTE Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,731,375
71,000 Hong Kong Telecommunications, Ltd., ADR . . . . . . . . . . . . . . . . . . 1,357,875
*85,000 Huaneng Power International, ADR . . . . . . . . . . . . . . . . . . . . . 1,253,750
131,000 NIPSCO Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,897,250
52,000 NYNEX Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,911,000
289,000 Pacificorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,238,125
72,000 Pacific Telesis Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,052,000
143,000 Peco Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,503,500
105,000 Public Service Enterprise Group . . . . . . . . . . . . . . . . . . . . . . 2,782,500
153,000 Rochester Telephone Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 3,232,125
139,000 Southern Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,780,000
137,000 Sprint Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,784,625
36,000 Telefonos de Mexico, S.A., ADR . . . . . . . . . . . . . . . . . . . . . . 1,476,000
42,000 Texas Utilities Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,344,000
----------------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,926,000
----------------
TOTAL COMMON STOCK (Cost $272,421,584) . . . . . . . . . . . . . . . . . 278,054,438
----------------
CONVERTIBLE PREFERRED STOCK 4.8%
CONSUMER NON-DURABLES 0.4%
300,000 RJR Nabisco Holdings Corp., PERCS, $.60125 . . . . . . . . . . . . . . . . 1,800,000
----------------
CONSUMER SERVICES 0.5%
50,000 SCI Finance N.V., LLC, 6.25% . . . . . . . . . . . . . . . . . . . . . . . 2,600,000
----------------
ENERGY 1.3%
40,000 NorAm Energy Corp., $3.00 . . . . . . . . . . . . . . . . . . . . . . . . . 1,195,000
50,000 Occidental Petroleum Corp., $7.75 . . . . . . . . . . . . . . . . . . . . . 2,437,500
61,000 Transco Energy Co., $3.50 . . . . . . . . . . . . . . . . . . . . . . . . . 2,798,375
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,430,875
----------------
</TABLE>

F-3
<PAGE> 78
INVESTMENT PORTFOLIO, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------------
<S> <C> <C>
CONVERTIBLE CORPORATE OBLIGATIONS 9.2%
CONSUMER DISTRIBUTION 0.7%
$ 1,000,000 Federated Department Stores, Inc., Zero Coupon, 2/15/04 . . . . . . . . . . 960,000
3,000,000 Price/Costco, Inc., 6.75%, 3/1/01 . . . . . . . . . . . . . . . . . . . . . 2,730,000
----------------
TOTAL CONSUMER DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 3,690,000
----------------
CONSUMER SERVICES 1.7%
Time Warner, Inc.
1,059,000 8.75%, 1/10/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,755
11,400,000 Zero Coupon, 12/17/12 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,477,000
9,700,000 Zero Coupon, 6/22/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,431,375
500,000 Wendy's International, Inc., 7.00%, 4/1/06 . . . . . . . . . . . . . . . . 634,375
----------------
TOTAL CONSUMER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 8,543,505
----------------
ENERGY 1.9%
2,800,000 Amoco CDA Petroleum Co., 7.375%, 9/1/13 . . . . . . . . . . . . . . . . . . 3,220,000
2,710,000 Ensearch Corp., 6.375%, 4/1/02 . . . . . . . . . . . . . . . . . . . . . . 2,317,050
2,180,000 Oryx Energy Co., 7.50%, 5/15/14 . . . . . . . . . . . . . . . . . . . . . . 1,509,650
2,415,000 Western Co. of North America, 7.25%, 1/15/15 . . . . . . . . . . . . . . . 2,559,900
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,606,600
----------------
FINANCE 1.0%
5,000,000 Aegon N.V., 4.75%, 11/1/04 . . . . . . . . . . . . . . . . . . . . . . . . 5,225,000
----------------
PRODUCER MANUFACTURING 1.9%
2,500,000 Browning-Ferris Industries, Inc., 6.75%, 7/18/05 . . . . . . . . . . . . . 2,250,000
2,553,000 Cooper Industries, Inc., 7.05%, 1/1/15 . . . . . . . . . . . . . . . . . . 2,306,250
2,825,000 Trinova Corp., 6.00%, 10/15/02 . . . . . . . . . . . . . . . . . . . . . . 2,450,688
8,300,000 Valhi, Inc., Zero Coupon, 10/20/07 . . . . . . . . . . . . . . . . . . . . 2,510,750
----------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . 9,517,688
----------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.1%
3,100,000 Albany International Corp., 5.25%, 3/15/02 . . . . . . . . . . . . . . . . 2,658,250
7,500,000 RPM, Inc., Zero Coupon, 9/30/12 . . . . . . . . . . . . . . . . . . . . . . 2,812,500
----------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES . . . . . . . . . . . . . . . 5,470,750
----------------
</TABLE>

F-4
<PAGE> 79
INVESTMENT PORTFOLIO, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 0.9%
$ 2,500,000 3Com Corp., 10.25%, 11/1/01 . . . . . . . . . . . . . . . . . . . . . . . . $ 2,650,000
1,500,000 General Instrument Corp., 5.00%, 6/15/00 . . . . . . . . . . . . . . . . . 2,010,000
----------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,660,000
----------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost $51,817,240) . . . . . . . 46,713,543
----------------
NON-CONVERTIBLE CORPORATE OBLIGATIONS 12.0%
CONSUMER DISTRIBUTION 2.1%
1,500,000 Harcourt General, Inc., 8.25%, 6/1/02 . . . . . . . . . . . . . . . . . . . 1,476,750
4,000,000 May Department Stores Co., 8.375%, 8/1/24 . . . . . . . . . . . . . . . . . 3,801,640
5,000,000 Sears, Roebuck & Co., 9.375%, 11/1/11 . . . . . . . . . . . . . . . . . . . 5,303,000
----------------
TOTAL CONSUMER DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 10,581,390
----------------
CONSUMER DURABLES 1.1%
3,000,000 Ford Motor Co., 9.00%, 9/15/01 . . . . . . . . . . . . . . . . . . . . . . 3,054,900
3,000,000 General Motors Corp., 7.00%, 6/15/03 . . . . . . . . . . . . . . . . . . . 2,718,900
----------------
TOTAL CONSUMER DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . 5,773,800
----------------
CONSUMER SERVICES 1.2%
3,000,000 Hertz Corp., 7.00%, 4/15/01 . . . . . . . . . . . . . . . . . . . . . . . . 2,792,400
2,000,000 Tele-Communications, Inc., 9.80%, 2/1/12 . . . . . . . . . . . . . . . . . 2,017,400
1,500,000 Time Warner, Inc., 7.95%, 2/1/00 . . . . . . . . . . . . . . . . . . . . . 1,425,600
----------------
TOTAL CONSUMER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 6,235,400
----------------
ENERGY 3.7%
1,000,000 Burlington Resources, Inc., 9.875%, 6/15/10 . . . . . . . . . . . . . . . . 1,113,700
5,000,000 Enron Corp., 9.125%, 4/1/03 . . . . . . . . . . . . . . . . . . . . . . . . 5,173,500
4,000,000 Occidental Petroleum Corp., 10.125%, 11/15/01 . . . . . . . . . . . . . . . 4,307,000
5,000,000 Panhandle Eastern Corp., 7.875%, 8/15/04 . . . . . . . . . . . . . . . . . 4,788,000
1,500,000 Texaco Capital, Inc., 8.25%, 10/1/06 . . . . . . . . . . . . . . . . . . . 1,491,750
2,000,000 Western Atlas, Inc., 7.875%, 6/15/04 . . . . . . . . . . . . . . . . . . . 1,908,800
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,782,750
----------------
FINANCE 0.4%
2,000,000 General Electric Capital Corp., 8.90%, 9/15/04 . . . . . . . . . . . . . . 2,080,400
----------------
PRODUCER MANUFACTURING 0.6%
1,500,000 Deere & Co., 9.125%, 7/1/96 . . . . . . . . . . . . . . . . . . . . . . . . 1,527,345
1,500,000 Reliance Electric Co., 6.80%, 4/15/03 . . . . . . . . . . . . . . . . . . . 1,353,000
----------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . 2,880,345
----------------
RAW MATERIALS/PRODUCER INDUSTRIES 1.3%
4,000,000 Georgia-Pacific Corp., 9.95%, 6/15/02 . . . . . . . . . . . . . . . . . . . 4,263,320
2,000,000 Scott Paper Co., 10.00%, 3/15/05 . . . . . . . . . . . . . . . . . . . . . 2,275,000
----------------
TOTAL RAW MATERIALS/PRODUCER INDUSTRIES . . . . . . . . . . . . . . . . . 6,538,320
----------------
TECHNOLOGY 0.7%
4,000,000 Philips Electronics N.V., 7.75%, 4/15/04 . . . . . . . . . . . . . . . . . 3,787,600
----------------
UTILITIES 0.9%
2,500,000 MCI Communications Corp., 7.125%, 1/20/00 . . . . . . . . . . . . . . . . . 2,388,675
2,000,000 Texas Utilities Electric Co., 8.25%, 4/1/04 . . . . . . . . . . . . . . . . 1,970,600
----------------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,359,275
----------------
TOTAL NON-CONVERTIBLE CORPORATE OBLIGATIONS (Cost $64,749,520) . . . . . 61,019,280
----------------
</TABLE>

F-5
<PAGE> 80
INVESTMENT PORTFOLIO, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT OBLIGATIONS 6.0%
$ 1,000,000 Federal Farm Credit Banks, 9.00%, 3/7/97 . . . . . . . . . . . . . . . . . $ 1,026,490
1,500,000 Republic of Columbia Notes, 7.25%, 2/23/04 . . . . . . . . . . . . . . . . 1,278,750
20,000,000 United States Treasury Bonds, 8.125%, 8/15/19 . . . . . . . . . . . . . . . 20,246,800
United States Treasury Notes
5,000,000 8.00%, 10/15/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,025,000
1,000,000 9.125%, 5/15/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045,780
2,000,000 9.25%, 1/15/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,036,870
----------------
TOTAL GOVERNMENT OBLIGATIONS (Cost $30,652,315) . . . . . . . . . . . . . 30,659,690
----------------
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------------
<S> <C> <C>
EQUITY-LINKED SECURITIES 1.1%
40,000 American Express Co., (First Data Corp.), 6.25%, 10/15/96 . . . . . . . . . 1,708,744
95,000 Atlantic Richfield Co., 9.00%, 9/15/97 . . . . . . . . . . . . . . . . . . 2,474,297
30,000 Salomon, Inc., (Oracle Systems Corp.), 6.50%, 2/1/97 . . . . . . . . . . . 1,551,920
----------------
TOTAL EQUITY-LINKED SECURITIES (Cost $2,940,000) . . . . . . . . . . . . 5,734,961
----------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------------
<S> <C> <C>
SHORT-TERM INVESTMENTS 11.5%
**$ 2,600,000 Federal National Mortgage Association, 5.86%, 1/9/95 . . . . . . . . . . . 2,596,198
25,003,819 General Electric Capital Corp., 5.50%, 1/3/95 . . . . . . . . . . . . . . . 24,988,541
5,070,000 Repurchase agreement with Lehman Government Securities, Inc.,
dated 12/30/94, 5.35%, due 1/3/95 (Collateralized by U.S.
Government Obligations in a pooled cash account) repurchase
proceeds $5,073,014 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,070,000
**26,000,000 United States Treasury Bills, 5.03% to 5.54%, 1/5/95 to 3/30/95 . . . . . . 25,942,824
----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $58,598,581) . . . . . . . . . . . . . 58,597,563
----------------
TOTAL INVESTMENTS (Cost $506,502,728) 99.2% . . . . . . . . . . . . . . . 505,249,538
Other assets and liabilities, net 0.8% . . . . . . . . . . . . . . . . . 4,149,847
----------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 509,399,385
================
</TABLE>

* Non-income producing security.
** Securities placed as collateral for futures contracts (Note 1B).
PERCS-Preferred equity redeemable cumulative stock

F-6
<PAGE> 81
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994

<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $506,502,728) . . . . . . . . . . . . . . . . . . . $ 505,249,538
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,166
Dividends and interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,937,727
Receivable for investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,654,035
Receivable for Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,328,307
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,466
-------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513,185,239
-------------------
LIABILITIES
Payable for Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,170,293
Payable for investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . 718,912
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711,680
Due to Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448,475
Due to broker - variation margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,771
Due to Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,838
Due to shareholder service agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,865
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 238,020
------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,785,854
------------------
NET ASSETS, equivalent to $5.16 per share for Class A, Class B and Class C shares . . $ 509,399,385
==================
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 46,604,828 Class A, 46,930,223 Class B and 5,224,037
Class C shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 987,591
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511,331,018
Accumulated net realized loss on securities . . . . . . . . . . . . . . . . . . . . . . (1,834,071)
Unrealized appreciation (depreciation) of securities
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,253,190)
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,679
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,642)
------------------
NET ASSETS at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 509,399,385
==================
</TABLE>

See Notes to Financial Statements.

F-7
<PAGE> 82
STATEMENT OF OPERATIONS
Year Ended December 31, 1994

<TABLE>
<S> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,047,812
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,826,696
-----------------
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,874,508
-----------------
EXPENSES
Service fees - Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,111
Distribution and service fees - Class B . . . . . . . . . . . . . . . . . . . . . . . . 1,927,432
Distribution and service fees - Class C . . . . . . . . . . . . . . . . . . . . . . . . 217,701
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,875,881
Shareholder service agent's fees and expenses . . . . . . . . . . . . . . . . . . . . . 1,040,038
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,186
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,603
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,630
State franchise taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,193
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,103
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,087
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,145
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,369
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,201
-----------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,082,680
-----------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,791,828
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,793,804
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,768,903)
Net unrealized appreciation (depreciation) of securities during the year
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,088,971)
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,529
-----------------
Net realized and unrealized loss on securities . . . . . . . . . . . . . . . . . . . (23,884,541)
-----------------
Decrease in net assets resulting from operations . . . . . . . . . . . . . . . . . . . $ (10,092,713)
=================
</TABLE>

See Notes to Financial Statements.

F-8
<PAGE> 83
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . $312,995,062 $137,074,872
------------ ------------
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,791,828 6,480,281
Net realized gain on securities . . . . . . . . . . . . . . . . . . . . . . 4,024,901 12,517,779
Net unrealized appreciation (depreciation) of securities during the
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,909,442) 10,925,800
------------ ------------
Increase (decrease) in net assets resulting from operations . . . . . . (10,092,713) 29,923,860
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,565,034) (4,775,222)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,449,845) (1,475,949)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (616,081) (58,964)
------------ ------------
(13,630,960) (6,310,135)
------------ ------------
In excess of book-basis net investment income (Note 1F)
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203,788) --
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,526) --
------------ ------------
(230,314) --
------------ ------------
From net realized gain on securities
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,994,687) (7,071,374)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,771,623) (3,840,630)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (421,966) (305,758)
------------ ------------
(8,188,276) (11,217,762)
------------ ------------
Total dividends and distributions . . . . . . . . . . . . . . . . . . . . (22,049,550) (17,527,897)
------------ ------------
NET EQUALIZATION CREDITS (Note 1G) . . . . . . . . . . . . . . . . . . . . . 818,258 269,145
------------ ------------
FUNDS SHARE TRANSACTIONS
Proceeds from shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,769,448 76,892,651
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,314,454 99,155,135
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,343,775 10,141,387
------------ ------------
275,427,677 186,189,173
------------ ------------
Proceeds from shares issued for dividends and distributions reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,530,860 9,564,663
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,619,248 4,948,254
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853,040 283,638
------------ ------------
19,003,148 14,796,555
------------ ------------
Cost of shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,662,551) (32,913,458)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,416,978) (4,523,104)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,622,968) (294,084)
------------ ------------
(66,702,497) (37,730,646)
------------ ------------
Increase in net assets resulting from Fund share transactions . . . . . . . 227,728,328 163,255,082
------------ ------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,404,323 175,920,190
------------ ------------
NET ASSETS, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $509,399,385 $312,995,062
============ ============
</TABLE>

See Notes to Financial Statements.

F-9
<PAGE> 84

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

American Capital Equity Income Fund, Inc. (the "Fund'') is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.

A. INVESTMENT VALUATIONS

Securities, listed or traded on a national securities exchange are
valued at the last sale price. Unlisted securities and listed
securities for which the last sale price is not available are valued
at the mean between the last reported bid and asked price.

Short-term investments with a maturity of 60 days or less when
purchased are valued at amortized cost, which approximates market
value. Short-term investments with a maturity of more than 60 days when
purchased are valued based on market quotations until the remaining
days to maturity becomes less than 61 days. From such time, until
maturity, the investments are valued at amortized cost.

B. FUTURES CONTRACTS

Transactions in futures contracts are utilized in strategies to manage
the market risk of the Fund's investments. The purchase of a futures
contract increases the impact of changes in the market price of
investments on net asset value. There is a risk that the market
movement of such instruments may not be in the direction forecasted.
Note 3 - Investment Activity contains additional information.

Upon entering into futures contracts, the Fund maintains, in a
segregated account with its custodian, securities with a value equal
to its obligation under the futures contracts. A portion of these
funds is held as collateral in an account in the name of the broker,
the Fund's agent in acquiring the futures position. During the period
the futures contract is open, changes in the value of the contract
("variation margin") are recognized by marking the contract to market
on a daily basis. As unrealized gains or losses are incurred,
variation margin payments are received from or made to the broker.
Upon the closing or cash settlement of a contract, gains or losses are
realized. The cost of securities acquired through delivery under a
contract is adjusted by the unrealized gain or loss on the contract.

C. REPURCHASE AGREEMENTS

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 or subadvised by Van Kampen American
Capital Asset Management, Inc. (the "Adviser"), the daily aggregate of
which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt securities. 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.

D. FEDERAL INCOME TAXES

No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the
Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and
taxable net realized gains on investments to its shareholders.

E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME

Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of
identified cost. Dividend income is recorded on the ex-dividend date.
Interest income is accrued daily.

F. DIVIDENDS AND DISTRIBUTIONS

Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which
may differ from generally accepted accounting principles. Such
dividends or distributions may exceed financial statement earnings.

G. EQUALIZATION

At December 31, 1994, the Fund discontinued the accounting practice of
equalization, which it had used since its inception. Equalization is
a practice whereby a portion of the proceeds from sales and costs of
redemptions of Fund shares, equivalent on a per-share basis to the
amount of the undistributed net investment income, is charged or
credited to undistributed net investment income.

F-10
<PAGE> 85
The balance of equalization included in undistributed net investment
income at the date of change, which was $99,049, was reclassified to
capital surplus. Such reclassification had no effect on net assets,
results of operations, or net asset value per share of the Fund.

H. DEBT DISCOUNT AND PREMIUM

For financial reporting purposes, debt discounts or premiums are
accounted for on the same basis as is followed for federal income tax
reporting. Accordingly, original issue debt discounts are amortized
over the life of the security. Premiums on debt securities are not
amortized. Market discounts are recognized at the time of sale as
realized gains for book purposes and ordinary income for tax purposes.

NOTE 2 - MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES

The Adviser serves as the investment manager of the Fund. Management fees are
paid monthly, based on the average daily net assets of the Fund at an annual
rate of .50% of the first $150 million, .45% of the next $100 million, .40% of
the next $100 million, and .35% of the amount in excess of $350 million.

Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or subadvised by the Adviser.
For the year ended December 31, 1994, these charges included $11,167 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The services provided by the
Adviser are at cost.

Van Kampen American Capital Shareholder Services, Inc., an affiliate of the
Adviser, serves as the Fund's shareholder service agent. These services are
provided at cost plus a profit. For the year ended December 31, 1994, the fees
for these services aggregated $791,935.

The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor") and Advantage Capital Corporation (the "Retail Dealer"), both
affiliates of the Adviser, received $183,464 and $168,108, respectively, as
their portion of the commissions charged on sales of Fund shares during the
year.

The Fund paid brokerage commissions of $69,839 to a company which is deemed an
affiliate of the Adviser's parent because it owns more than 5% of the company's
outstanding voting securities.

Under the Distribution Plans, the Fund pays up to .25% per annum of its average
net assets to the Distributor for expenses and service fees incurred. The Class
B shares and Class C shares pay an additional fee up to .75% per annum of their
average daily net assets to reimburse the Distributor for its distribution
expenses. Actual distribution expenses incurred by the Distributor for Class B
shares and Class C shares may exceed the amounts reimbursed to the Distributor
by the Fund. At December 31, 1994, the unreimbursed expenses incurred by the
Distributor under the Class B and Class C plans aggregated approximately $9.0
million and $315,000, respectively, and may be carried forward and reimbursed
through either the collection of the contingent deferred sales charges from
share redemptions or, subject to the annual renewal of the plans, future Fund
reimbursements of distribution fees.

Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.

Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.

NOTE 3 - INVESTMENT ACTIVITY

During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $532,538,498 and $345,051,777,
respectively.

For federal income tax purposes, the identified cost of investments owned at
December 31, 1994 was $506,861,381. Net unrealized depreciation of investments
aggregated $1,611,843, gross unrealized appreciation of investments aggregated
$19,428,404 and gross unrealized depreciation of investments aggregated
$21,040,247. Approximately $1.5 million of financial statement losses are
deferred for federal income tax purposes to the 1995 fiscal year.

At December 31, 1994, the Fund held 140 long Standard & Poor's 500 Index
futures contracts expiring in March 1995. The market value of such contracts
was $32,294,500, and the unrealized appreciation was $176,679.

NOTE 4 - DIRECTOR COMPENSATION

Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,470 plus a fee of $40 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the
Fund at the annual rate of $550. During the year, such fees aggregated
$16,513.

F-11
<PAGE> 86
The directors may participate in a voluntary Deferred Compensation Plan ("the
Plan"). The Plan is not funded and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. At December 31, 1994, the liability for the Plan aggregated
$42,836. Each director covered under the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.

NOTE 5 - CAPITAL

The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred
basis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.

The Fund has $200 million of each class of $.01 par value shares of capital
stock authorized. Transactions in shares of capital stock were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1994 1993
---- ----
<S> <C> <C>
Shares sold
Class A .......................... 17,663,518 14,025,473
Class B .......................... 29,471,357 18,121,105
Class C .......................... 4,133,514 1,800,500
----------- ----------
51,268,389 33,947,078
----------- ----------
Shares issued for dividends reinvested
Class A .......................... 1,805,958 1,758,061
Class B .......................... 1,635,157 907,984
Class C .......................... 161,557 52,000
----------- ----------
3,602,672 2,718,045

Shares redeemed
Class A .......................... (6,664,087) (6,040,736)
Class B .......................... (4,963,223) (823,993)
Class C .......................... (871,369) (52,165)
----------- ----------
(12,498,679) (6,916,894)
----------- ----------
Increase in shares outstanding ..... 42,372,382 29,748,229
=========== ==========
</TABLE>

F-12
<PAGE> 87
FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each of the
periods indicated.

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
YEAR ENDED DECEMBER 31
---------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period . . . . . . . . . . . $5.55 $5.15 $4.83 $4.00 $4.48
------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income . . . . . . . . . . . . . . . . . . . . . .27 .25 .255 .26 .255
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . (.06) (.06) (.05) (.045) (.035)
------- ------- ------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . . . .21 .19 .205 .215 .22
Net realized and unrealized gains or losses
on securities . . . . . . . . . . . . . . . . . . . . . . (.317) .6055 .31 .83 (.42)
------- ------- ------ ------ ------
Total from investment operations . . . . . . . . . . . . . (.107) .7955 .515 1.045 (.20)
------- ------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income . . . . . . . . . . . (.1855) (.168) (.195) (.215) (.235)
Distributions from net realized gains
on securities . . . . . . . . . . . . . . . . . . . . . . (.0975) (.2275) - - (.045)
------- ------- ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . . . . (.283) (.3955) (.195) (.215) (.28)
------- ------- ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . $5.16 $5.55 $5.15 $4.83 $4.00
======= ======= ====== ====== ======
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . . . . . . (1.98%) 16.00% 10.72% 26.67% (4.68%)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) . . . . . . . . . . . $240.5 $187.6 $123.8 $103.1 $85.4
Average net assets (millions) . . . . . . . . . . . . . . . $214.4 $152.1 $109.6 $ 93.7 $91.7

Ratios to average net assets
Expenses . . . . . . . . . . . . . . . . . . . . . . . . 1.02% 1.06% 1.01% 1.02% .89%
Net investment income . . . . . . . . . . . . . . . . . . 3.60% 3.33% 3.95% 4.88% 5.39%
Portfolio turnover rate . . . . . . . . . . . . . . . . . . 92% 101% 74% 80% 150%
</TABLE>

(1) Total return does not consider the effect of sales charges.

See Notes to Financial Statements.

F-13
<PAGE> 88
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.

<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------------- ----------------------------
MAY 1, 1992(1) YEAR JULY 6,
YEAR ENDED DECEMBER 31 THROUGH ENDED 1993(1) THROUGH
----------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993(2) 1992(2) 1994 1993(2)
------------- ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period . . . . $5.55 $5.15 $4.83 $5.55 $5.37
------- ------- ------ ------- ------

INCOME FROM INVESTMENT OPERATIONS
Investment income . . . . . . . . . . . . . .21 .24 .16 .23 .11
Expenses . . . . . . . . . . . . . . . . . . (.08) (.10) (.06) (.09) (.05)
------- ------- ------ ------- ------
Net investment income . . . . . . . . . . . .13 .14 .10 .14 .06
Net realized and unrealized gains
or losses on securities . . . . . . . . . . (.277) .6155 .337 (.287) .379
------- ------- ------ ------- ------
Total from investment operations . . . . . . (.147) .7555 .437 (.147) .439
------- ------- ------ ------- ------

LESS DISTRIBUTIONS
Dividends from net investment income . . . . (.13) (.128) (.117) (.14) (.064)
Dividends in excess of book-basis net
investment income (Note 1F) . . . . . . . . (.0155) - - (.0055) -
Distributions from net realized gains
on securities . . . . . . . . . . . . . . . (.0975) (.2275) - (.0975) (.195)
------- ------- ------ ------- ------
Total distributions . . . . . . . . . . . . . (.243) (.3555) (.117) (.243) (.259)
------- ------- ------ ------- ------
Net asset value, end of period . . . . . . . $5.16 $5.55 $5.15 $5.16 $5.55
======= ======= ====== ======= ======

TOTAL RETURN(3) . . . . . . . . . . . . . . . (2.70%) 14.94% 9.17% (2.70%) 8.27%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) . . . . $242.0 $115.4 $13.3 $26.9 $10.0
Average net assets (millions) . . . . . . . . $192.9 $ 56.2 $ 4.4 $21.8 $ 3.4
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . . . . 1.82% 1.89% 1.87%(4) 1.82% 1.98%(4)
Net investment income . . . . . . . . . . . 2.82% 2.45% 3.06%(4) 2.83% 2.27%(4)

Portfolio turnover rate . . . . . . . . . . . 92% 101% 74% 92% 101%
</TABLE>

(1) Commencement of offering of sales
(2) Based on average month-end shares outstanding
(3) Total return for periods of less than one full year are not
annualized. Total return does not consider the effect of sales
charges.
(4) Annualized

See Notes to Financial Statements.

F-14
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL EQUITY INCOME FUND, INC.

In our opinion, the accompanying statement of assets and liabilities including
the investment portfolio and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Equity Income
Fund, Inc. at December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the selected per share data and ratios for each of the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and ratios
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Houston, Texas
February 2, 1995

F-15