COMMON SENSE TRUST, DEFS14A, 1996-08-30

COMMON SENSE TRUST
DEFS14A, 1996-08-30

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

COMMON SENSE TRUST
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- - --------------------------------------------------------------------------------
(5) Total fee paid:

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

/X/ Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

- - --------------------------------------------------------------------------------
(3) Filing Party:

- - --------------------------------------------------------------------------------
(4) Date Filed:

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

Dear Common Sense Fund Shareholder:

Each proxy card enclosed in this envelope represents your voting privilege in
a separate Common Sense Fund. We have grouped your proxy cards together for your
convenience and to reduce postage expenses.

The meeting date for your Fund is October 29, 1996. Please sign all proxy
cards and return them in the postage-paid envelope included with this material.

We appreciate the prompt return of your proxy cards.

<PAGE> 3

August 30, 1996

Dear Common Sense Fund Shareholder:

The enclosed proxy statement relates to a joint meeting of the shareholders of
the Funds of Common Sense Trust (the "Funds"). VK/AC Holding, Inc., the
corporate parent of the investment adviser of each Fund, has entered into a
merger agreement with Morgan Stanley Group Inc. ("Morgan Stanley") and certain
of Morgan Stanley's affiliates. Pursuant to the merger agreement, your Fund's
investment adviser will become an indirect subsidiary of Morgan Stanley. Each
Fund's current investment adviser will continue to provide the Fund with
investment advisory and management services following the merger. The primary
purpose of the meeting is to permit each Fund's shareholders to consider a new
investment advisory agreement and, for Common Sense International Equity Fund
(the "International Fund"), a new investment subadvisory agreement, to take
effect following the merger, as required by the federal securities laws. The new
investment advisory agreement between your Fund and its investment adviser and,
in the case of the International Fund, the new investment subadvisory agreement
among the Fund, its investment adviser and its investment subadviser, will be
substantially identical to the Fund's current investment advisory agreement,
and, in the case of the International Fund, the current investment subadvisory
agreement, except for the dates of execution, effectiveness and termination.

The attached proxy statement seeks shareholder approval on this and certain
other items. Although we encourage you to read carefully the full proxy
statement, we have created a brief question-and-answer section for your
convenience.

Your vote is important and your participation

in the governance of your Fund(s) does make a difference.

The proposals have been unanimously approved by the Trustees of the Fund(s),
who recommend you vote "FOR" each of these proposals. YOUR IMMEDIATE RESPONSE
WILL HELP SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. EACH FUND VOTES
SEPARATELY, SO PLEASE SIGN AND RETURN ALL OF YOUR FUND PROXY FORMS. We look
forward to your participation, and we thank you for your continued confidence in
Van Kampen American Capital.

PLEASE SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.

Sincerely,

/s/ Don G. Powell

Don G. Powell
Chief Executive Officer
<PAGE> 4

INFORMATION ABOUT YOUR PROXY STATEMENT

Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. Federal securities laws require a vote by each Fund's shareholders on
certain matters whenever the Fund's investment adviser, or its parent
corporation, is subject to a change in control. Morgan Stanley's acquisition
of the corporate parent of your Fund's investment adviser may be deemed to
be a change of control. Among the proposed items your Fund is seeking
shareholder approval on are:

- approval of a new investment advisory agreement

- approval of a new investment subadvisory agreement, if applicable

- amendments to certain fundamental investment policies

- ratification of the independent auditors

Please refer to the proxy statement for a detailed explanation of the
proposed items.

Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. You can expect the same management expertise and high quality shareholder
service you've grown accustomed to. The new investment advisory agreement
between your Fund and its investment adviser will be substantially identical
to the Fund's current investment advisory agreement, except for the dates of
execution, effectiveness and termination. In the case of the International
Fund, the new investment subadvisory agreement among the Fund, the
investment adviser and the investment subadviser will be substantially
identical to the current investment subadvisory agreement, except for the
dates of execution, effectiveness and termination. The acquisition will not
cause a change in the portfolio manager of your Fund.

Q. WHAT OTHER SHAREHOLDER PROPOSALS WILL BE VOTED ON?
A. You are being asked to ratify the selection of Ernst & Young LLP as the
independent auditors for your Fund(s). In addition, shareholders of the
Common Sense Municipal Bond Fund are being asked to amend their Fund's
fundamental investment policies to permit the Fund to invest in investment
companies.

Q. WHY DO I NEED TO VOTE?

A. Your vote is needed to ensure that the proposals can be acted upon. Your
immediate response on the enclosed proxy card(s) will help save on the costs
of any further solicitations for a shareholder vote. We encourage all
shareholders to participate in the governance of their Fund(s).

<PAGE> 5

Q. HOW DO THE TRUSTEES OF MY FUND SUGGEST THAT I VOTE?
A. After careful consideration, the trustees of your Fund unanimously recommend
that you vote "FOR" each of the items proposed on the enclosed proxy
card(s).

Q. WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDER MEETING?
A. Van Kampen American Capital will pay for those expenses relating to
reapproval of investment advisory and subadvisory agreements and the Funds
will pay for those expenses related to other proposals.

Q. WHERE DO I MAIL MY PROXY CARD(S)?
A. You may use the enclosed postage-paid envelope or mail your proxy card(s)
to:
Proxy Tabulator

P.O. Box 9135

Hingham, MA 02043

Q. WHO DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about the proxy solicitation.
Please call PFS Shareholder Services at 1-800-544-5445 between 9:00 a.m. and
6:00 p.m. Eastern time, Monday through Friday.
<PAGE> 6

COMMON SENSE(R) TRUST, ON BEHALF OF ITS SERIES:
COMMON SENSE EMERGING GROWTH FUND
COMMON SENSE GOVERNMENT FUND
COMMON SENSE GROWTH FUND
COMMON SENSE GROWTH AND INCOME FUND
COMMON SENSE INTERNATIONAL EQUITY FUND
COMMON SENSE MONEY MARKET FUND
COMMON SENSE MUNICIPAL BOND FUND

ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 544-5445

NOTICE OF JOINT SPECIAL MEETING OF
SHAREHOLDERS

TO BE HELD OCTOBER 29, 1996

A Joint Special Meeting of Shareholders (the "Meeting") of the Common Sense
Emerging Growth Fund, the Common Sense Government Fund, the Common Sense Growth
Fund, the Common Sense Growth and Income Fund, the Common Sense International
Equity Fund (the "International Fund"), the Common Sense Money Market Fund and
the Common Sense Municipal Bond Fund (the "Municipal Fund") (each a "Fund" and
collectively, the "Funds"), each a separate series of Common Sense Trust (the
"Trust"), will be held at the offices of Van Kampen American Capital, Inc., 2800
Post Oak Boulevard, Houston, Texas 77056, in the 46th floor conference room on
Tuesday, October 29, 1996 at 2:00 p.m. for the following purposes:

1. With respect to the Trust on behalf of each Fund, to approve or
disapprove a new investment advisory agreement (the "New Advisory Agreement");

2. With respect to the Trust on behalf of the International Fund, to approve
or disapprove a new investment subadvisory agreement (the "New Subadvisory
Agreement");

3. With respect to the Trust on behalf of the Municipal Fund, to approve or
disapprove certain changes to its fundamental investment policies with respect
to investment in other investment companies;

4. With respect to the Trust, to ratify or reject the selection of Ernst &
Young LLP as independent auditors for its current fiscal year; and

5. To transact such other business as may properly come before the Meeting
or any adjournments thereof.

Shareholders of record of each Fund at the close of business on September 3,
1996 are entitled to notice of and to vote at this meeting or any adjournment
thereof.

By Order of the Board of Trustees

/s/ Nori L. Gabert

Nori L. Gabert, Vice President and Secretary

August 30, 1996
<PAGE> 7

THE TRUST WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT) TO
A SHAREHOLDER OF ANY FUND UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO
PFS SHAREHOLDER SERVICES BY CALLING (800) 544-5445 OR BY WRITING TO THE TRUST AT
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181.

SHAREHOLDERS OF EACH FUND ARE INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON
THE ENCLOSED PROXY CARD WITH RESPECT TO EACH FUND IN WHICH YOU WERE A
SHAREHOLDER AS OF THE RECORD DATE, DATE AND SIGN SUCH PROXY CARD(S), AND RETURN
IT (THEM) IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND
NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.

IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU MAIL YOUR PROXY PROMPTLY.

THE BOARD OF TRUSTEES RECOMMENDS THAT YOU CAST YOUR VOTE:

FOR ALL FUNDS

- FOR approval of each new advisory agreement.

- FOR the ratification of the selection of Ernst & Young LLP as independent
auditors for the current fiscal year of the Trust.

FOR THE INTERNATIONAL FUND ONLY

- FOR approval of the new subadvisory agreement.

FOR THE MUNICIPAL FUND ONLY

- FOR approval of changes in certain fundamental investment policies regarding
investment in other investment companies.

YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD(S) PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 8

PROXY STATEMENT

ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 544-5445

JOINT SPECIAL MEETING OF SHAREHOLDERS

OCTOBER 29, 1996

This proxy statement is furnished in connection with the solicitation by the
Board of Trustees (the "Trustees" or the "Board") of the Common Sense Emerging
Growth Fund (the "Emerging Growth Fund"), the Common Sense Government Fund, the
Common Sense Growth Fund, the Common Sense Growth and Income Fund, the Common
Sense International Equity Fund (the "International Fund"), the Common Sense
Money Market Fund and the Common Sense Municipal Bond Fund (the "Municipal
Fund") (each a "Fund" and collectively, the "Funds"), each a separate series of
Common Sense Trust (the "Trust") of proxies to be voted at a Joint Special
Meeting of Shareholders, and all adjournments thereof (the "Meeting") of the
Funds, to be held at the offices of Van Kampen American Capital, Inc., 2800 Post
Oak Boulevard, Houston, Texas 77056, in the 46th floor conference room, Tuesday,
October 29, 1996, at 2:00 p.m. The approximate mailing date of this proxy
statement and accompanying form of proxy is August 30, 1996.

The primary purpose of the Meeting is to permit each Fund's shareholders to
consider a New Advisory Agreement (defined below) to take effect following the
consummation of the transactions contemplated by an Agreement and Plan of
Merger, dated as of June 21, 1996 (the "Merger Agreement"), among Morgan Stanley
Group Inc. ("Morgan Stanley"), MSAM Holdings II, Inc., MSAM Acquisition Inc. and
VK/AC Holding, Inc. ("VKAC Holding"), the indirect parent corporation of each
Fund's investment adviser. Pursuant to the Merger Agreement, each Fund's
investment adviser will become an indirect subsidiary of Morgan Stanley. The
shareholder vote on the New Advisory Agreements is required under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a result of Morgan
Stanley's contemplated acquisition of the investment adviser. Each Fund's New
Advisory Agreement is substantially identical to such
<PAGE> 9

Fund's Current Advisory Agreement (defined below), except for the dates of
execution, effectiveness and termination.

Participating in the Meeting are holders of shares of beneficial interest, par
value $0.01 per share (collectively, the "Shares"), of each of the Funds. The
Meeting is scheduled as a joint meeting of the respective shareholders of the
Funds (the "Shareholders"), because the Shareholders of each of the Funds are
expected to consider and vote on similar matters. The Board has determined that
the use of a joint proxy statement for the Meeting is in the best interest of
the Shareholders of each of the Funds. In the event that a Shareholder of any
Fund present at the Meeting objects to the holding of a joint meeting and moves
for an adjournment of the meeting of such Fund to a time immediately after the
Meeting so that such Fund's meeting may be held separately, the persons named as
proxies will vote in favor of the adjournment. Shareholders of each Fund will
vote separately with respect to Proposal 1, and an unfavorable vote on Proposal
1 by the Shareholders of one Fund will not affect the implementation of such
proposal by another Fund, if such proposal is approved by the Shareholders of
the other Fund. Shareholders of the International Fund will vote on Proposal 2,
and Shareholders of the Municipal Fund will vote on Proposal 3. Shareholders of
all Funds of the Trust will vote together as a single class on Proposal 4.

The Board has fixed the close of business on September 3, 1996, as the record
date (the "Record Date") for the determination of holders of Shares of each Fund
entitled to vote at the Meeting. Shareholders of a Fund on the Record Date will
be entitled to one vote per share with respect to each proposal submitted to the
Shareholders of the Fund, with no Share having cumulative voting rights.

The following table summarizes each proposal to be presented at the Meeting
and the Funds solicited with respect to such proposal:

<TABLE>
<CAPTION>
PROPOSAL AFFECTED FUNDS
----------------------------------------------- -------------------
<S> <C> <C>
1. Approval of New Advisory Agreement All Funds
2. Approval of New Subadvisory Agreement International Fund
3. Amendment of Fundamental Investment Policies Municipal Fund
4. Ratification of Independent Auditors Trust(1)
</TABLE>

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

(1) The Shareholders of all the Funds of the Trust will vote together as a
single class on this proposal.

2
<PAGE> 10

THE TRUST WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT) TO
A SHAREHOLDER OF ANY FUND UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO
PFS SHAREHOLDER SERVICES BY CALLING (800) 544-5445 OR BY WRITING TO THE TRUST,
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181.

At the close of business on August 12, 1996, there were issued and outstanding
Shares of each of the Funds as set forth below:

<TABLE>
<CAPTION>
CLASS 1 SHARES CLASS A SHARES CLASS B SHARES TOTAL SHARES
FUND NAME OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
- - ---------------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Common Sense Emerging Growth
Fund.......................... 1 2,267,046 1,853,486 4,120,533
Common Sense Government Fund.... 28,527,901 976,424 1,285,547 30,789,872
Common Sense Growth Fund........ 169,313,347 2,499,430 3,893,096 175,705,873
Common Sense Growth and Income
Fund.......................... 52,838,217 1,574,622 2,638,929 57,051,768
Common Sense International
Equity Fund................... 1 543,917 425,688 969,606
Common Sense Money Market
Fund.......................... 60,800,018 20 20 60,800,058
Common Sense Municipal Bond
Fund.......................... 8,792,167 4,851 418 8,797,436
</TABLE>

The persons who, to the knowledge of the Funds, owned beneficially more than
5% of a class of a Fund's outstanding Shares as of August 12, 1996 are set forth
at Annex A hereto.

VOTING

The voting requirement for passage of a particular proposal depends on the
nature of the particular proposal. With respect to Proposals 1, 2 and 3, a vote
of a "majority of the outstanding voting securities" is required, which is
defined under the 1940 Act as the lesser of (i) 67% or more of the voting
securities of each respective Fund entitled to vote thereon present in person or
by proxy at the Meeting, if the holders of more than 50% of the outstanding
voting securities entitled to vote thereon are present in person or represented
by proxy, or (ii) more than 50% of the outstanding voting securities of each
respective Fund entitled to vote thereon. With respect to Proposal 4, an
affirmative vote of a majority of the Shares of the Trust present in person or
by proxy is necessary to ratify the selection of the independent auditors.

The Board recommends that you cast your vote:

- FOR approval of each New Advisory Agreement.

- FOR approval of the New Subadvisory Agreement.

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<PAGE> 11

- FOR approval of changes in certain fundamental investment policies of the
Municipal Fund regarding investment in other investment companies.

- FOR the ratification of the selection of Ernst & Young LLP as independent
auditors for the current fiscal year of the Trust.

All Shares of a Fund affected by a proposal will vote together as a single
class on such proposal. An unfavorable vote on a proposal by the Shareholders of
one Fund will not affect the implementation of such a proposal by another Fund;
if the proposal is approved by the Shareholders of the other Fund.

All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon. Proxies received
prior to the Meeting on which no vote is indicated will be voted "for" each
proposal as to which it is entitled to vote. Abstentions do not constitute votes
"for" a proposal and are treated as votes "against" a proposal. Broker non-votes
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominees do
not have discretionary power) do not constitute votes "for" or "against" a
proposal and are disregarded in determining the "votes cast" when the voting
requirement for the proposal is based on achieving a percentage of the voting
securities entitled to vote present in person or by proxy at the meeting. Broker
non-votes do not constitute votes "for" and are treated as votes "against" when
the voting requirement for the proposal is based on achieving a percentage of
the outstanding voting securities entitled to vote. A majority of the
outstanding Shares entitled to vote on a proposal must be present in person or
by proxy to have a quorum to conduct business at the Meeting. Abstentions and
broker non-votes will be deemed present for quorum purposes.

Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the Trust a written notice of revocation, by delivering a
duly executed proxy bearing a later date or by attending the Meeting and voting
in person.

The Trust knows of no business other than that mentioned in Proposals 1
through 4 of the Notice that will be presented for consideration at the Meeting.
If any other matters are properly presented, it is the intention of the persons
named on the enclosed proxy to vote proxies in accordance with their best
judgment. In the event a quorum is present at the Meeting but sufficient votes
to approve any of the proposals with respect to one or more Funds are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting of the concerned Fund to permit further solicitation of proxies
provided they determine that such an adjournment and additional solicitation is
reasonable and in the interest of shareholders based on a consideration of all
relevant factors, including the nature of the relevant proposal, the percentage
of votes then cast, the percentage of negative votes

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<PAGE> 12

then cast, the nature of the proposed solicitation activities and the nature of
the reasons for such further solicitation.

- - ------------------------------------------------------------------------------
PROPOSAL 1: APPROVAL OF NEW ADVISORY AGREEMENTS
- - ------------------------------------------------------------------------------

THE ADVISER

Van Kampen American Capital Asset Management, Inc. (the "Adviser") acts as
investment adviser for each Fund. The Adviser has acted as investment adviser or
investment subadviser for each Fund since each Fund commenced its investment
operations.

The Adviser currently is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VKAC Holding,
which in turn 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,
approximately 6% of the common stock of VKAC Holding and have the right to
acquire, upon the exercise of options (whether or not vested), approximately an
additional 12% of the common stock of VKAC Holding. Currently, and after giving
effect to the exercise of such options, no officer or trustee of the Trust owns
or would own 5% of more of the common stock of VKAC Holding. The addresses of
VKAC Holding, VKAC and the Adviser are One Parkview Plaza, Oakbrook Terrace,
Illinois 60181 and 2800 Post Oak Blvd., Houston, Texas 77056.

Prior to December 1994, the Adviser provided investment advisory services
under the name "American Capital Asset Management, Inc."

INFORMATION CONCERNING MORGAN STANLEY

Morgan Stanley and various of its directly or indirectly owned subsidiaries,
including Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co."), a
registered broker-dealer and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign

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<PAGE> 13

exchange, commodities and swaps (involving foreign exchange, commodities,
indices and interest rates); real estate advice, financing and investing; and
global custody, securities clearance services and securities lending. Morgan
Stanley Asset Management Inc. ("MSAM") also is a wholly-owned subsidiary of
Morgan Stanley. As of June 30, 1996, MSAM, together with its affiliated
investment advisory companies, had approximately $103.5 billion of assets under
management and fiduciary advice.

THE ACQUISITION

Pursuant to the Merger Agreement, MSAM Acquisition Inc. will be merged with
and into VKAC Holding and VKAC Holding will be the surviving corporation (the
"Acquisition"). Following the Acquisition, VKAC Holding and the Adviser will be
indirect subsidiaries of Morgan Stanley.

The Adviser anticipates that the consummation of the Acquisition will occur by
the end of November 1996 provided that a number of conditions set forth in the
Merger Agreement are met or waived. The conditions require, among other things,
that as of the closing the shareholders of certain investment companies
(including the Funds) and investors in certain accounts advised by the Adviser
or its affiliates, which investments companies and accounts have aggregate
assets in excess of a specified minimum amount, have approved new investment
advisory agreements or consented to the assignment of existing investment
advisory agreements. At the closing, MSAM Acquisition Inc. will pay
approximately $740 million (based on VKAC's long-term debt outstanding as of
July 31, 1996) in cash to the stockholders of VKAC Holding (excluding certain
management stockholders), and to persons owning options to purchase stock of
VKAC Holding, subject to certain purchase price adjustments set forth in the
Merger Agreement. As of July 31, 1996, VKAC had long-term debt outstanding of
approximately $410 million. To the extent that pre-tax income of VKAC prior to
the closing of the Acquisition permits the repayment of its long-term debt, the
purchase price for the equity interests in VKAC Holding will be increased by the
amount of long-term debt repaid. The purchase price also is subject to certain
adjustments based, among other things, on assets under management of VKAC and
its subsidiaries at the time of closing. The Adviser also contemplates that, as
part of the Acquisition, certain officers and directors of VKAC Holding and its
affiliates will contribute to MSAM Holdings II, Inc. their existing shares of
common stock of VKAC Holding in exchange for approximately $25 million of shares
of preferred stock of MSAM Holdings II, Inc. which, in turn, will be
exchangeable into common stock, par value $1.00 per share, of Morgan Stanley at
specified times over a four year period. Such shares of preferred stock will
represent, in the aggregate, 5% of the combined voting power in MSAM Holdings
II, Inc., the remainder of which will be indirectly owned by Morgan Stanley.

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<PAGE> 14

VKAC Holding will engage in certain preparatory transactions prior to the
Acquisition, including the distribution to stockholders of VKAC Holding of (i)
all of VKAC Holding's investment in McCarthy, Crisanti & Maffei, Inc., a wholly-
owned subsidiary engaged in the business of distributing research and financial
information, (ii) all of VKAC Holding's investment in Hansberger Global
Investors, Inc., a company in which VKAC Holding made a minority investment in
May 1996, and (iii) certain related cash amounts.

There is no financing condition to the closing of the Acquisition. VKAC has
been advised by Morgan Stanley that as of August 30, 1996, no determination has
been made whether any additional indebtedness will be incurred by Morgan Stanley
and its affiliates or VKAC and its affiliates in connection with the
Acquisition. In addition, the disposition of VKAC's outstanding long-term
indebtedness (including its bank loans and senior notes) in connection with the
Acquisition has not yet been determined.

The operating revenue of VKAC and its subsidiaries for the fiscal year ended
December 31, 1995, less expenses for the same period, was more than adequate to
service VKAC's outstanding debt. VKAC prepaid $80 million of its long-term debt
in 1995, and has continued to make debt prepayments during 1996. VKAC Holding
and VKAC believe, based on the earnings experience of VKAC and its subsidiaries,
that after the Acquisition the operating revenue of VKAC and its subsidiaries
should be more than sufficient to service their debt and that VKAC and its
subsidiaries should be able to conduct their respective operations as now
conducted and as proposed to be conducted.

The Merger Agreement does not contemplate any changes, other than changes in
the ordinary course of business, in the management or operation of the Adviser
relating to the Funds, the personnel managing the Funds or other services or
business activities of the Funds. The Acquisition is not expected to result in
material changes in the business, corporate structure or composition of the
senior management or personnel of the Adviser, or in the manner in which the
Adviser renders services to the Funds. Morgan Stanley has agreed in the Merger
Agreement that, for a period of two years from the date of the Acquisition, it
will cause the Adviser to provide compensation and employee benefits which are
substantially comparable in the aggregate to those presently provided. The
Adviser does not anticipate that the Acquisition or any ancillary transactions
will cause a reduction in the quality of services now provided to the Funds, or
have any adverse effect on the Adviser's ability to fulfill its respective
obligations under the New Advisory Agreement or operate its business in a manner
consistent with past business practices.

Certain officers of the Adviser, including Don G. Powell, who also is a member
of the Board, previously entered into employment agreements with VKAC Holding
which expire from between 1997 and 2000. Certain officers of the Adviser also

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<PAGE> 15

previously entered into retention agreements with VKAC Holding, which will
remain in place for two years following the consummation of the Acquisition. The
Merger Agreement contemplates that Morgan Stanley will, and will cause VKAC
Holding to, honor such employment and retention agreements. The employment
agreements and retention agreements are intended to assure that the services of
the officers are available to the Adviser (and thus to the Funds) for a
remaining term of two to four years. As described above, certain officers and
employees of VKAC and the Adviser, including Mr. Powell, are expected to
contribute their existing shares of common stock of VKAC Holding to MSAM
Holdings II, Inc. in exchange for approximately $25 million of preferred stock
in MSAM Holdings II, Inc. which, in turn, will be exchangeable into common
stock, par value $1.00 per share, of Morgan Stanley at specified times over a
four year period. Such shares of preferred stock will represent, in the
aggregate, 5% of the combined voting power in MSAM Holdings II, Inc.

THE ADVISORY AGREEMENTS

Consummation of the Acquisition may constitute an "assignment" (as defined in
the 1940 Act) of the investment advisory agreement currently in effect between
the Trust on behalf of each Fund and the Adviser (the "Current Advisory
Agreement"). As required by the 1940 Act, the Current Advisory Agreement
provides for its automatic termination in the event of an assignment. See "The
Current Advisory Agreements" below.

In anticipation of the Acquisition and in order for the Adviser to continue to
serve as investment adviser to the Funds after consummation of the Acquisition,
a new investment advisory agreement (the "New Advisory Agreement") between the
Trust on behalf of each Fund and the Adviser must be approved (i) by a majority
of the Trustees of the Trust who are not parties to the New Advisory Agreement
or interested persons of any such party ("Disinterested Trustees") and (ii) by
the holders of a majority of the outstanding voting securities (within the
meaning of the 1940 Act) of each Fund. See "The New Advisory Agreements" below.

The following summary of the Current Advisory Agreements and the New Advisory
Agreements set forth herein is qualified by reference to Annex B.

THE CURRENT ADVISORY AGREEMENTS. The Current Advisory Agreement for the Trust
on behalf of each Fund was last approved by a majority of the Trustees,
including a majority of the Disinterested Trustees, voting in person at a
meeting called for that purpose on June 12, 1996, to continue the Current
Advisory Agreement for a period of one year. The Current Advisory Agreement was
last approved by Shareholders of each Fund (except for the Emerging Growth Fund
and the International Fund) at a meeting held on December 16, 1994 relating to
the acquisition of the Adviser's corporate parent by The Van Kampen Merritt
Companies, Inc. The Current Advisory Agreement for the Trust on behalf of each
of the

8
<PAGE> 16

Emerging Growth Fund and the International Fund was approved by the initial
Shareholder of each Fund on February 21, 1995.

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

Each Current Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or law, or for any loss suffered by the particular
Fund in connection with the matters to which the Current Advisory Agreement
relates except, a loss resulting from willful misfeasance, bad faith, negligence
or reckless disregard of its obligations or duties under each Current Advisory
Agreement.

Each Fund's advisory fee is based on that Fund's average net assets, which are
calculated on a daily basis. The advisory fee is payable for each calendar month
as soon as practicable after the end of that month. The fees payable to the
Adviser are 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 VKAC Holding, or its successor, in
connection with the purchase and sale of assets of the Fund, less any direct
expenses incurred by such person in connection with obtaining such commissions,
fees, brokerage or similar payments. Although Smith Barney, Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson") may be considered affiliated
persons of PFS Distributors, Inc., the distributor of the Funds' shares, because
they are each an indirect subsidiary of Travelers Group Inc., they are not
subsidiaries of VKAC Holding and thus are not subject to the foregoing sentence.
In addition, while Morgan Stanley & Co. will become an affiliated person of VKAC
Holding as a result of the Acquisition, Morgan Stanley & Co. will not become a
subsidiary of VKAC Holding, and therefore will not be subject to such fee
reductions. Under each Current Advisory Agreement, the Adviser agrees to use its
best efforts to recapture tender offer solicitation fees and exchange offer fees
in connection with the Fund's transactions and to advise the Board of any other
commissions, fees, brokerage or similar payments which may be possible for the
Adviser or any other direct or indirect majority owned subsidiary of VKAC
Holding, or its successor, to receive in connection with the Fund's portfolio
transactions or other arrangements which may benefit the Trust.

Annex C contains a schedule of brokerage commissions paid by the Funds on
portfolio transactions during the past fiscal year, including such commissions
paid by the Funds to affiliated brokers, Smith Barney and Robinson.

9
<PAGE> 17

Set forth below are the fee schedules in effect for each Fund:

A. Common Sense Emerging Growth Fund
Common Sense Growth Fund
Common Sense Growth and Income Fund

.65% of the first $1 billion of average daily net assets; .60% of
the next $1 billion; .55% of the next $1 billion; .50% of the next
$1 billion; and .45% of average daily net assets in excess of $4
billion.

B. Common Sense Government Fund

.60% of the first $1 billion of average daily net assets; .55% of
the next $1 billion; .50% of the next $1 billion; .45% of the next
$1 billion; .40% of the next $1 billion; and .35% of average daily
net assets in excess of $5 billion.

C. Common Sense International Equity Fund

1.00% of the Fund's average daily net assets.

D. Common Sense Money Market Fund

.50% of the first $2 billion of average daily net assets; .475% of
the next $2 billion; and .45% of average daily net assets in excess
of $4 billion.

E. Common Sense Municipal Bond Fund

.60% of the first $1 billion of average daily net assets; .55% of
the next $1 billion; .50% of the next $1 billion; and .45% of
average daily net assets in excess of $3 billion.

The Adviser's activities are subject to the review and supervision of the
Board to which the Adviser renders periodic reports with respect to each Fund's
investment activities. The Current Advisory Agreement may be terminated by
either party, at any time, without penalty, upon 60 days written notice, and
will automatically terminate in the event of its assignment.

The net assets of each of the Funds as of August 12, 1996, as well as other
investment companies advised by the Adviser, and other investment companies for
which the Adviser acts as subadviser, the rates of compensation to the Adviser,
the aggregate amount of advisory fees paid by each Fund to the Adviser for the
last fiscal year and the aggregate amount of any other material payments paid by
each Fund to the Adviser for the last fiscal year are set forth at Annex D
hereto.

Each Fund pays all other expenses incurred in its operation including, but not
limited to, direct charges relating to the purchase and sale of its portfolio
securities, interest charges, fees and expenses of outside legal counsel and
independent

10
<PAGE> 18

auditors, taxes and governmental fees, costs of share certificates and any other
expenses (including clerical expenses) of issuance, sale or repurchase of its
Shares, expenses in connection with its dividend reinvestment plan, membership
fees in trade associations, expenses of registering and qualifying its Shares
for sale under federal and state securities laws, expenses of printing and
distribution, expenses of filing reports and other documents filed with
governmental agencies, expenses of annual and special meetings of the trustees
and shareholders, fees and disbursements of the transfer agents, custodians and
sub-custodians, expenses of disbursing dividends and distributions, fees,
expenses and out-of-pocket costs of the trustees who are not affiliated with the
Adviser, insurance premiums, indemnification and other expenses not expressly
provided for in each Current Advisory Agreement, and any extraordinary expenses
of a nonrecurring nature.

THE NEW ADVISORY AGREEMENTS. The Board approved a proposed New Advisory
Agreement between the Trust on behalf of each Fund and the Adviser on July 22,
1996, the form of which is attached hereto as Annex B. The form of the proposed
New Advisory Agreement is substantially identical to the Current Advisory
Agreement between the Trust on behalf of each Fund and the Adviser, except for
the dates of execution, effectiveness and termination.

The investment advisory fee as a percentage of net assets payable by each Fund
will be the same under each New Advisory Agreement as under the Current Advisory
Agreement. If the investment advisory fee under each New Advisory Agreement had
been in effect for each Fund's most recently completed fiscal year, advisory
fees paid to the respective Adviser by each Fund would have been identical to
those paid under the Current Advisory Agreement.

The Board met on July 22, 1996, at which meeting the Trustees, including the
Disinterested Trustees, unanimously approved the New Advisory Agreement for each
Fund and recommended each such agreement for approval by the Shareholders of the
respective Fund at the Meeting. The New Advisory Agreement would take effect as
to each Fund upon the later to occur of (i) the obtaining of Shareholder
approval or (ii) the closing of the Acquisition. Each New Advisory Agreement
will continue in effect for an initial two year term and thereafter for
successive annual periods as long as such continuance is approved in accordance
with the 1940 Act.

In evaluating the New Advisory Agreements, the Board took into account that
each Fund's Current Advisory Agreement and its New Advisory Agreement, including
the terms relating to the services to be provided thereunder by the Adviser and
the fees and expenses payable by such Fund, are substantially identical, except
for the dates of execution, effectiveness and termination. The Trustees also
considered other possible benefits to the Adviser and Morgan Stanley that may
result from the Acquisition, including the continued use, to the extent
permitted by law, of Morgan Stanley & Co. and its affiliates for brokerage
services and the

11
<PAGE> 19

possible retention of MSAM as a subadviser to certain Van Kampen American
Capital investment companies (not including the Funds).

The Board also considered the terms of the Merger Agreement and the possible
effects of the Acquisition upon VKAC's and the Adviser's organization and upon
the ability of the Adviser to provide advisory services to each respective Fund.
The Board considered the skills and capabilities of the Adviser and the
representations of Morgan Stanley that no material change was planned in the
current management or facilities of the Adviser. In this regard, representatives
of Morgan Stanley met with the Board at the joint board meeting at which time
such representatives described the resources available to VKAC and the Adviser,
after giving effect to the Acquisition, to secure for each Fund quality
investment research, investment advice and other client services. The Board
considered the financial resources of Morgan Stanley and Morgan Stanley's
representation to the Board that it will provide sufficient capital to support
the operations of the Adviser. The Board considered the reputation, expertise
and resources of Morgan Stanley and its affiliates in domestic and international
financial markets. The Board considered the continued employment of members of
senior management of the Adviser and VKAC pursuant to employment and retention
agreements and the incentives provided to such members and other key employees
of the Adviser and VKAC, to be important to help to assure continuity of the
personnel primarily responsible for maintaining the quality of investment
advisory and other services for the Funds.

The Board also considered the effects on the Funds of the Adviser becoming an
affiliate of Morgan Stanley. Following the Acquisition, the 1940 Act will
prohibit or impose certain conditions on the ability of the Funds to engage in
certain transactions with Morgan Stanley and its affiliates. For example, absent
exemptive relief the Funds will be prohibited from purchasing securities from
Morgan Stanley & Co., a wholly-owned broker-dealer subsidiary of Morgan Stanley,
in transactions in which Morgan Stanley & Co. acts as a principal, and the Funds
will have to satisfy certain conditions in order to engage in securities
transactions in which Morgan Stanley & Co. acts as a broker or to purchase
securities in an underwritten offering in which Morgan Stanley & Co. is acting
as an underwriter. In this connection, management of the Adviser represented to
the Board that they do not believe these prohibitions or conditions will have a
material effect on the management or performance of the Funds.

The Board was advised that Section 15(f) of the 1940 Act is applicable to the
Acquisition. Section 15(f) of the 1940 Act permits, in the context of a change
in control of an investment adviser to a registered investment company, the
receipt by such investment adviser, or any of its affiliated persons, of an
amount or benefit in connection with such sale, as long as two conditions are
satisfied. First, an "unfair burden" must not be imposed on the investment
company for which the investment adviser acts in such capacity as a result of
the sale of such interest, or any express or

12
<PAGE> 20

implied terms, conditions or understandings applicable thereto. The term "unfair
burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser) or any "interested person", as defined in the
1940 Act, of any such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory and other
services), or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than ordinary fees for bona fide principal underwriting services).

Management of each of the Funds is aware of no circumstances arising from the
Acquisition, preparatory transactions to the Acquisition or any potential
financing that might result in the imposition of an "unfair burden" on the
Funds. Moreover, Morgan Stanley has agreed in the Merger Agreement that, upon
consummation of the Acquisition, it will take no action which would have the
effect, directly or indirectly, of violating any of the provisions of Section
15(f) of the 1940 Act in respect of the Acquisition. In this regard the Merger
Agreement provides that Morgan Stanley will use its reasonable best efforts to
assure that (i) no "unfair burden" will be imposed on any Fund as a result of
the transactions contemplated by the Merger Agreement and (ii) except as
provided in the Merger Agreement, that the investment advisory fees paid by the
Funds will not be increased for a period of two years from the closing of the
Acquisition and that, during such period, advisory fee waivers shall not be
permitted to expire except in accordance with their terms. The Adviser may
permit a voluntary fee waiver unilaterally adopted by it to expire at any time
and no assurance can be given that voluntary waivers will not be permitted to
expire during the two year period. During the two year period following the
Acquisition, the Adviser does not intend to change its policies with respect to
the circumstances under which voluntary fee waivers may be permitted to expire.
Following the Acquisition, to the extent permitted by applicable law, VKAC
anticipates that the Funds will continue to use Morgan Stanley & Co. and its
affiliates for brokerage services.

The second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable, at
least 75% of the subject investment company's board of directors must not be
"interested persons" (as defined in the 1940 Act) of the investment company's
investment adviser or predecessor adviser. The current composition of the Board
would be in compliance with such condition subsequent to the Acquisition.

After consideration of the above factors, and such other factors and
information that the Trustees deemed relevant, the Trustees, including the
Disinterested Trustees, unanimously approved the New Advisory Agreement and
voted to recommend its approval to the Shareholders of each Fund.

13
<PAGE> 21

In the event that Shareholders of a Fund do not approve the New Advisory
Agreement with respect to a Fund and the Acquisition is consummated, the Board
would seek to obtain for the Fund interim investment advisory services at the
lesser of cost or the current fee rate either from the Adviser or from another
advisory organization. Thereafter, the Board would either negotiate a new
investment advisory agreement with an advisory organization selected by the
Board or make appropriate arrangements, in either event subject to approval of
the Shareholders of such Fund. In the event the Acquisition is not consummated,
the Adviser would continue to serve as investment adviser of the Funds pursuant
to the terms of the Current Advisory Agreement.

SHAREHOLDER APPROVAL

To become effective, each New Advisory Agreement must be approved by a
majority of the outstanding voting securities of the respective Fund. The vote
of "a majority of the outstanding voting securities" is defined under the 1940
Act as the lesser of the vote of (i) 67% or more of the Shares of the respective
Fund entitled to vote thereon present at the Meeting if the holders of more than
50% of such outstanding Shares are present in person or represented by proxy; or
(ii) more than 50% of such outstanding Shares of the Fund entitled to vote
thereon. Each New Advisory Agreement was unanimously approved by the Board after
consideration of all factors which they determined to be relevant to their
deliberations, including those discussed above. The Board also unanimously
determined to submit each New Advisory Agreement for consideration by the
Shareholders of the respective Fund. THE BOARD OF TRUSTEES OF EACH FUND
RECOMMENDS A VOTE "FOR" APPROVAL OF THE NEW ADVISORY AGREEMENT.

- - ------------------------------------------------------------------------------
PROPOSAL 2: APPROVAL OF NEW SUBADVISORY AGREEMENT
FOR THE INTERNATIONAL FUND
- - ------------------------------------------------------------------------------

Reference is made to the discussion above with respect to Proposal 1, most of
which is also applicable to Proposal 2. The Sub-Adviser (defined below) is not
affiliated with VKAC, the Adviser or Morgan Stanley.

THE SUBADVISORY AGREEMENTS

Consummation of the Acquisition described in Proposal 1 may constitute an
"assignment" (as defined in the 1940 Act) of the investment subadvisory
agreement currently in effect among the Trust on behalf of the International
Fund, the Adviser and Smith Barney Mutual Funds Management Inc. (the
"Sub-Adviser") (the "Current Subadvisory Agreement"). As required by the 1940
Act, the Current Subadvisory Agreement provides for its automatic termination in
the event of an assignment. See "The Current Subadvisory Agreement" below.

14
<PAGE> 22

In anticipation of the Acquisition and in order for the Sub-Adviser to
continue to serve as investment subadviser to the International Fund after
consummation of the Acquisition, a new investment subadvisory agreement (the
"New Subadvisory Agreement") among the Trust on behalf of the International
Fund, the Adviser and the Sub-Adviser must be approved (i) by the Trustees,
including a majority of the Disinterested Trustees and (ii) by the holders of a
majority of the outstanding voting securities (within the meaning of the 1940
Act) of the International Fund. See "The New Subadvisory Agreement" below.

The following summary of the Current Subadvisory Agreement and the New
Subadvisory Agreement set forth herein is qualified by reference to Annex E.

THE CURRENT SUBADVISORY AGREEMENT. The Sub-Adviser has acted as investment
subadviser to the International Fund since the commencement of the Fund's
investment operations. The Current Subadvisory Agreement was last approved by a
majority of the Trustees, including a majority of the Disinterested Trustees,
voting in person at a meeting called for that purpose on June 12, 1996, to
continue the Current Subadvisory Agreement for a period of one year. The Current
Subadvisory Agreement was approved by the initial shareholder on February 21,
1995.

Under the Current Subadvisory Agreement, the Sub-Adviser, subject to the
supervision, direction and approval of the Trustees and the Adviser, shall
conduct a continual program of investment, evaluation and, if appropriate in the
view of the Sub-Adviser, sale and reinvestment of the International Fund's
assets. Under the Current Subadvisory Agreement, the Sub-Adviser is responsible
for the day-to-day operations and investment decisions for the International
Fund and is authorized, in its discretion and without prior consultation with
the Adviser, to: (a) manage the Fund's assets in accordance with its investment
goal and policies; (b) make investment decisions; (c) place purchase and sale
orders for portfolio transactions; and (d) employ professional portfolio
managers and securities analysts who provide research services. The Current
Subadvisory Agreement provides that the Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Adviser in connection with the matters to which the Current Subadvisory
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Sub-Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under the Current Subadvisory Agreement.

The Sub-Adviser pays all expenses (excluding brokerage costs, custodian fees,
auditors fees or other expenses borne by the International Fund or the Trust) in
connection with the performance of its services under the Current Subadvisory
Agreement. The International Fund will bear certain other expenses to be
incurred in its operation, including, but not limited to, investment advisory
fees, sub-advisory fees (other than sub-advisory fees paid pursuant to the
Current Subadvisory Agreement) and administration fees; fees for necessary
professional and brokerage

15
<PAGE> 23

services; costs relating to local administration of securities; fees for any
pricing service; the costs of regulatory compliance; and pro rata costs
associated with maintaining the Trust's legal existence and shareholder
relations. All other expenses not specifically assumed by the Sub-Adviser or by
the Adviser under the Current Advisory Agreement are borne by the International
Fund or the Trust.

The investment advisory fee paid under the Current Subadvisory Agreement to
the Sub-Adviser is equal to 50% of the advisory fee received by the Adviser
under the Current Advisory Agreement taking into account any waiver or return to
the International Fund of any or all of such advisory fee by the Adviser (with
any such return of fees to be treated as if not actually received). Under the
Current Advisory Agreement, the Adviser is entitled to a monthly advisory fee at
the annual rate of 1.00% of the International Fund's average daily net assets.
The International Fund's average net assets are determined by taking the average
of all determinations of the net assets during a given calendar month. Average
net assets are calculated on a daily basis. Such fee is payable for each
calendar month as soon as practicable after the end of that month.

The Current Subadvisory Agreement may be terminated at any time, without
payment of any penalty, on 60 days written notice by (i) the Trustees, (ii) the
holders of a majority of the International Fund's outstanding voting securities,
or (iii) by the Sub-Adviser. The Current Subadvisory Agreement will
automatically terminate in the event of its assignment.

THE NEW SUBADVISORY AGREEMENT. The Board approved a New Subadvisory Agreement
among the Trust on behalf of the International Fund, the Adviser and the
Sub-Adviser, the form of which is attached hereto as Annex E. The form of the
proposed New Subadvisory Agreement is substantially identical to the Current
Subadvisory Agreement among the Trust on behalf of the International Fund, the
Adviser and the Sub-Adviser, except for the dates of execution, effectiveness
and termination.

The investment advisory fee will be the same under the New Subadvisory
Agreement as under the Current Subadvisory Agreement. If the investment advisory
fee under the New Subadvisory Agreement had been in effect for the International
Fund's most recently completed fiscal year, advisory fees paid to the
Sub-Adviser by the International Fund would have been identical to those paid
under the Current Subadvisory Agreement.

The Board met on July 22, 1996, at which meeting the Trustees, including the
Disinterested Trustees, unanimously approved the New Subadvisory Agreement for
the International Fund and recommended such New Subadvisory Agreement for
approval of the Shareholders at the Meeting. The New Subadvisory Agreement would
take effect upon the later to occur of (i) obtaining of Shareholder approval or
(ii) closing of the Acquisition. The New Subadvisory Agreement will continue in

16
<PAGE> 24

effect for an initial two year term and thereafter for successive annual periods
as long as such continuance is approved in accordance with the 1940 Act.

In evaluating the New Subadvisory Agreement, the Board took into account that
the Current Subadvisory Agreement and its New Subadvisory Agreement, including
the terms relating to the services to be provided thereunder by the Sub-Adviser
and the fees and expenses payable by the International Fund are substantially
identical, except for the dates of execution, effectiveness and termination.

In the event that Shareholders of the International Fund do not approve the
New Subadvisory Agreement and the Acquisition is consummated, the Board would
seek to obtain for the International Fund interim investment advisory services
at the lesser of cost or the current fee rate either from the Adviser or from
another advisory organization. Thereafter, the Board would either negotiate a
new investment subadvisory agreement with an advisory organization selected by
the Board or make appropriate arrangements, in either event subject to approval
of the Shareholders of the International Fund. In the event the Acquisition is
not consummated, the Sub-Adviser would continue to serve as Sub-Adviser of the
International Fund pursuant to the terms of the Current Subadvisory Agreement.

INFORMATION ABOUT THE SUB-ADVISER

The Sub-Adviser is an affiliate of Smith Barney and a wholly-owned subsidiary
of Smith Barney Holdings Inc., which in turn is a wholly-owned subsidiary of
Travelers Group Inc. Travelers Group Inc. is a diversified financial services
holding company engaged primarily in four business segments: investment
services, consumer finance services, life insurance services and property and
casualty insurance services. The Sub-Adviser was formed in 1968 and serves as
investment manager to numerous other investment companies having aggregate
assets as of the date of the Proxy Statement in excess of $65 billion. The
Sub-Adviser is located at 388 Greenwich Street, New York, New York 10013.

The Sub-Adviser's executive officers, together with their principal
occupations, are listed below. Each is located at 388 Greenwich Street, New
York, New York, 10013.

<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- - --------------------------- -----------------------------------------------
<S> <C>
Jessica M. Bibliowicz...... Executive Vice President of Smith Barney and
Chairman of the Board and Chief Executive
Officer of the Sub-Adviser. Prior to 1994,
Director of Sales and Marketing for Prudential
Mutual Funds, prior to 1991, First Vice
President, Asset Management Division of
Shearson Lehman Brothers Inc.
</TABLE>

17
<PAGE> 25

<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- - --------------------------- -----------------------------------------------
<S> <C>
Heath B. McLendon.......... Managing Director of Smith Barney, Chairman of
the Board of Smith Barney Strategy Advisers
Inc. and President and Director of the
Sub-Adviser. Prior to 1993, Senior Executive
Vice President of Shearson Lehman Brothers,
Inc., Vice Chairman of the Asset Management
Division of Shearson Lehman Brothers, Inc., and
Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited.
Lewis E. Daidone........... Managing Director of Smith Barney and Director
and Senior Vice President of the Sub-Adviser
and Smith Barney Strategy Advisers Inc.
Michael J. Day............. Managing Director of Smith Barney and Treasurer
of the Sub-Adviser.
Thomas B. Stiles, II....... Managing Director of Smith Barney and Chief
Investment Officer of the Sub-Adviser. Prior to
1993, Senior Executive Vice President of
Shearson Lehman Brothers, Inc.
Christina T. Sydor......... Managing Director of Smith Barney, Secretary
and General Counsel of the Sub-Adviser, and
Secretary of Smith Barney Strategy Advisers
Inc.
</TABLE>

Annex D indicates the size of the International Fund, the advisory fee rate,
the aggregate amount of the advisory fee during the last fiscal year and the
aggregate amount of any other material payments made to the Adviser by the
International Fund. Annex F indicates the size of each investment company
advised or subadvised by the Sub-Adviser, that has a similar investment
objective with that of the International Fund, and the advisory fee rate.

SHAREHOLDER APPROVAL

To become effective, the New Subadvisory Agreement must be approved by a
majority of the outstanding voting securities of the International Fund. The
vote of "a majority of the outstanding voting securities" is defined under the
1940 Act as the lesser of the vote of (i) 67% of more of the Shares of the
International Fund entitled to vote thereon present at the Meeting if the
holders of more than 50% of such outstanding Shares are present in person or
represented by proxy; or (ii) more than 50% of such outstanding Shares of the
International Fund entitled to vote thereon. The New Subadvisory Agreement was
unanimously approved by the Trustees after consideration of all factors which
they determined to be relevant to their deliberations, including those discussed
above. The Board also unanimously determined to submit the New Subadvisory
Agreement for consideration by the Shareholders of the International Fund. THE
BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE NEW SUBADVISORY
AGREEMENT.

18
<PAGE> 26

- - ------------------------------------------------------------------------------
PROPOSAL 3: APPROVAL OF CHANGES TO FUNDAMENTAL
INVESTMENT POLICIES OF THE MUNICIPAL FUND
- - ------------------------------------------------------------------------------

Under the 1940 Act, the Municipal Fund is subject to various restrictions in
purchasing the securities of investment companies. Section 12 of the 1940 Act
limits the Municipal Fund, immediately after a purchase, from (1) investing more
than ten percent of its respective assets in the securities of other investment
companies; (2) owning more than three percent of the total outstanding voting
stock of any other investment company; and (3) having more than five percent of
its respective assets invested in securities of another investment company.

On June 12, 1996, the Board authorized the Municipal Fund and the Adviser
together with certain other investment companies managed by the Adviser and its
affiliates, to seek exemptive relief from the Securities and Exchange Commission
("SEC") to permit the Fund to purchase securities of the Van Kampen American
Capital Tax-Free Money Market Fund (the "Tax-Free Money Fund") in excess of the
limitations imposed by Section 12 of the 1940 Act. The Tax-Free Money Fund is a
diversified, open-end management investment company whose shares are available
to the public. The exemptive relief relating to the above circumstance and
similar exemptive relief that may be obtained by the Municipal Fund and the
Adviser in the future are referred to herein as the "Exemptive Order." The Tax-
Free Money Fund and any other Van Kampen American Capital investment companies
in which the Municipal Fund may invest pursuant to exemptive relief similar to
the Exemptive Order are referred to herein as the "Exemptive Order Funds." In
addition, Congress is currently considering amending the 1940 Act. If the
legislation is passed, it would allow the Municipal Fund to purchase shares of
the Exemptive Order Funds to an extent greater than that currently permitted by
the 1940 Act. In anticipation of the Exemptive Order and potential amendments to
the 1940 Act, the Trustees recommend changing certain of the fundamental
policies of the Municipal Fund to permit the Fund to acquire shares of other
open-end investment companies to the extent permitted by the 1940 Act, by rule
or by order of the SEC.

The Adviser believes that it is desirable for the Municipal Fund to be able to
invest its assets in the Exemptive Order Funds in accordance with its investment
policies. This proposed change would provide the Municipal Fund greater
flexibility in pursuing its investment objective and in responding to market
developments by removing percentage limitations on investments in other open-end
investment companies that invest in securities that meet the investment policies
of the Municipal Fund.

The fundamental policies of several of the Common Sense Funds permit
investment in shares of other open-end investment companies. If Shareholders

19
<PAGE> 27

approve this proposal, the Municipal Fund will have the same ability to invest
in open-end investment companies as do several of the other Common Sense Funds.

In connection with obtaining the Exemptive Order, the Adviser may agree to
waive fees with respect to that portion of the net assets of the Municipal Fund
invested in the Exemptive Order Funds and collect fees from the Exemptive Order
Funds. Alternatively, the Adviser may elect to waive advisory fees at the
Municipal Fund level and to collect advisory fees at the Exemptive Order Funds
level. In any event, the Adviser will not be paid an advisory fee more than once
with respect to the same assets. Other expenses incurred by the Exemptive Order
Funds (such as audit and custodial fees) will be borne by such Fund, and
indirectly by the Municipal Fund. Management of the Adviser, however,
anticipates that cost savings in the areas of administration, out-of-pocket
expenses (such as audit and custodial fees) and portfolio transaction expenses
will mitigate such additional expenses.

The Municipal Fund will not invest in the Exemptive Order Funds in excess of
the limits currently imposed by Section 12 until the Fund has received the
Exemptive Order, the 1940 Act is amended or the Rules thereunder are amended and
Shareholders have approved this proposal. There can be no assurance that the SEC
will issue the Exemptive Order or that the 1940 Act will be amended.

The fundamental investment policies of the Municipal Fund presently provide
that the Fund may not with respect to 75% of its assets, invest more than five
percent of its assets in the securities of any one issuer (except the U.S.
Government and repurchase agreements secured thereby), or purchase more that ten
percent of the outstanding voting securities of any one issuer. In addition, the
fundamental investment policies of the Municipal Fund also limit, by percentage,
the extent to which the Fund is permitted to invest in certain classes of
securities. The Municipal Fund may not invest more than five percent of its
respective assets in restricted securities or securities for which market
quotations are not readily available; it may not invest more than five percent
of its respective assets in companies that have been in business less than three
years; and it may not invest more than 25% of its respective assets in
securities issued by companies principally engaged in any one industry. If the
Municipal Fund acquires securities of the Exemptive Order Funds, the Municipal
Fund will "look through" the Exemptive Order Funds to the Exemptive Order Funds'
portfolio of investments in determining whether the Municipal Fund is in
compliance with its investment restrictions. For example, if Municipal Fund's
investment in the Exemptive Order Funds was $10 million and the Exemptive Order
Funds had five percent of its assets invested in the utilities industry, the
Municipal Fund would be considered to have an investment of $500,000 in the
utilities industry. Consequently, if the proposal is approved by Shareholders,
the Municipal Fund would not indirectly invest in securities through

20
<PAGE> 28

the Exemptive Order Funds in excess of the percentage limitations specified in
its fundamental investment policies or restrictions.

State securities laws and regulations in certain states in which shares of the
Municipal Fund are sold limit or prohibit investments by open-end investment
companies in shares of other investment companies. Implementation of the
proposed policy would require the Municipal Fund to obtain appropriate waivers
in such states.

The requirements of the 1940 Act or state securities laws applicable to the
Municipal Fund's investment in the securities of open-end investment companies
may, from time to time, be amended or waived. The Trustees believe the Municipal
Fund should have the ability to respond to such changes in these areas without
the necessity of holding a further meeting of shareholders.

AMENDMENTS TO INVESTMENT RESTRICTIONS

If approved by Shareholders, the relevant fundamental investment restrictions
will be amended to add the Municipal Fund to those Funds that may invest in
shares of other Van Kampen American Capital investment companies as noted below.
Additions are underlined.

A Fund shall not:

1. Lend money except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investments in repurchase agreements. A Fund will
not invest in repurchase agreements maturing in more than seven days
(unless subject to a demand feature) if any such investment, together
with any illiquid securities (including securities which are subject to
legal or contractual restrictions on resale) held by the Fund, exceeds
10% of the market or other fair value of its total net assets (15% in the
case of the Emerging Growth Fund and the International Equity Fund);
provided, however, that with respect to the Emerging Growth Fund, the
International Equity Fund, the Growth Fund, the Growth and Income Fund,
and the Municipal Fund, illiquid securities shall exclude shares of other
open-end investment companies owned by the Fund but include the Fund's
pro rata portion of the securities and other assets owned by any such
company. See "Repurchase Agreements";

2. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the U.S.
Government, its agencies or instrumentalities and repurchase agreements
secured thereby) or purchase more than 10% of the outstanding voting
securities of any one issuer. Neither limitation shall apply to the
acquisition of shares of other

21
<PAGE> 29

open-end investment companies by the Emerging Growth Fund, the
International Equity Fund, the Growth Fund, the Growth and Income Fund
and the Municipal Fund, to the extent permitted by rule or order of the
SEC exempting them from the limitations imposed by Section 12(d)(1) of
the 1940 Act;

3. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry; provided, however, that with respect
to the Emerging Growth Fund, the International Equity Fund, the Growth
Fund, the Growth and Income Fund, and the Municipal Fund, this limitation
shall exclude shares of other open-end investment companies owned by the
Fund but include the Fund's pro rata portion of the securities and other
assets owned by any such company. (This does not restrict any of the
Funds from investing in obligations of the U.S. Government and repurchase
agreements secured thereby); and

4. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except
through purchase in the open market in a transaction involving no
commission or profit to a sponsor or dealer (other than the customary
brokers commission) or as part of a merger, consolidation or other
acquisition, except that the Growth Fund, the Growth and Income Fund, and
the Municipal Fund may acquire shares of other open-end investment
companies to the extent permitted by rule or order of the SEC exempting
them from the limitations imposed by Section 12(d)(1) of the 1940 Act;

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5% of
the Fund's assets would be invested in such securities; provided,
however, that with respect to the Growth Fund, the Growth and Income
Fund, and the Municipal Fund this limitation shall exclude shares of
other open-end investment companies owned by the Fund but include the
Fund's pro rata portion of the securities and other assets owned by any
such company. Illiquid securities include securities subject to legal or
contractual restrictions on resale, which include repurchase agreements
which have a maturity of longer than seven days. This policy does not
apply to restricted securities eligible for resale pursuant to Rule 144A
under the 1933 Act which the Trustees or the Adviser under Board approved
guidelines may determine are liquid nor does it apply to other securities
for which, notwithstanding legal or contractual restrictions on resale, a
liquid market exists; and

6. Invest more than 5% of its assets in companies having a record together
with predecessors, of less than three years' continuous operation, except
that the Growth Fund, the Growth and Income Fund, and the Municipal Fund
may acquire shares of other open-end investment companies to the extent

22
<PAGE> 30

permitted by rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act.

The Trustees recommend a change in the fundamental investment policies to add
the Municipal Fund to those Funds that may invest in shares of other Van Kampen
American Capital open-end investment companies. If the proposed amendments to
the Municipal Fund's investment restrictions are approved, the Fund will invest
in securities of the Tax-Free Money Fund and other Van Kampen American Capital
investment companies only to the extent consistent with its investment
objectives and policies, and to the extent permitted by the 1940 Act, by rule or
by order of the SEC.

The proposed amendments to the investment restrictions of the Municipal Fund
are not related to the Acquisition described in Proposal 1. Shareholders are
being asked to consider such amendments at this time because the Trust does not
hold annual shareholder meetings, and Management of the Municipal Fund believes
that submitting this proposal together with Proposal 1 may reduce the expenses
incurred in connection with soliciting approval of this proposal.

SHAREHOLDER APPROVAL

To become effective, the proposed amendments must be approved by a majority of
the outstanding voting securities of the Municipal Fund. The vote of "a majority
of the outstanding voting securities" is defined in the 1940 Act as the lesser
of the vote of (i) 67% of more of the Shares of the Municipal Fund entitled to
vote thereon present at the Meeting if the holders of more than 50% of such
outstanding Shares are present in person or represented by proxy; or (ii) more
than 50% of such outstanding Shares of the Municipal Fund entitled to vote
thereon. The proposed amendments were unanimously approved by the Board after
consideration of all the factors the Trustees determined to be relevant to their
deliberations, including those discussed above. The Board also unanimously
determined to submit the proposed amendments to the Shareholders of the
Municipal Fund. THEREFORE, THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE AMENDED INVESTMENT RESTRICTIONS. If the proposed
changes are not approved, the Municipal Fund's fundamental investment policies
will not be changed.

- - ------------------------------------------------------------------------------
PROPOSAL 4: RATIFICATION OF INDEPENDENT AUDITORS
- - ------------------------------------------------------------------------------

The Board, including a majority of the Disinterested Trustees, has selected
the firm of Ernst & Young LLP, independent auditors, to examine the financial
statements for the current fiscal year of the Trust and each of its Funds. Each
Fund knows of no direct or indirect financial interest of the auditors in the
Funds. Such appointment is subject to ratification or rejection by the
shareholders of the Trust.

23
<PAGE> 31

Unless a contrary specification is made, the accompanying proxy will be voted in
favor of ratifying the selection of such accountants.

Representatives of Ernst & Young LLP are expected to be present at the Meeting
and will be available to respond to appropriate questions from shareholders and
will have the opportunity to make a statement if they so desire.

SHAREHOLDER APPROVAL

The Shareholders of all the Funds of the Trust voting as a single class are
entitled to vote on this issue. An affirmative vote of a majority of the Shares
of the Trust present in person or by proxy and voting is required to ratify the
selection of the accountants for the Trust. THE BOARD OF TRUSTEES OF EACH FUND
RECOMMENDS A VOTE "FOR" RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE CURRENT FISCAL YEAR OF THE TRUST.

24
<PAGE> 32

- - ------------------------------------------------------------------------------
OTHER INFORMATION
- - ------------------------------------------------------------------------------

DIRECTORS AND OFFICERS OF THE ADVISER

The following table sets forth certain information concerning the principal
executive officers and directors of the Adviser. The address of each of the
following persons is noted below.

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- - ---------------------------- ----------------------------------------------
<S> <C>
Don G. Powell............... President, Chief Executive Officer and a
2800 Post Oak Blvd. Director of VKAC Holding and VKAC and
Houston, TX 77056 Chairman, Chief Executive Officer and a
Director of Van Kampen American Capital
Distributors, Inc. ("Distributors"), the
Adviser, Van Kampen American Capital
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser"),
and Van Kampen American Capital Advisors, Inc.
Chairman, President and a Director of Van
Kampen American Capital Exchange Corporation,
American Capital Contractual Services, Inc.
and American Capital Shareholders Corporation.
Chairman and a Director of ACCESS Investor
Services, Inc. ("ACCESS"), Van Kampen Merritt
Equity Advisors Corp., McCarthy, Crisanti &
Maffei, Inc., and Van Kampen American Capital
Trust Company. Chairman, President and a
Director of Van Kampen American Capital
Services, Inc. Director, Trustee or Managing
General Partner of other open-end investment
companies and closed-end investment companies
advised by the Adviser. Prior to July 1996,
Chairman and Director of VSM Inc. and VCJ Inc.
Prior to July 1996, President, Chief Executive
Officer and a Trustee/Director of certain
open-end investment companies and closed-end
investment companies advised by the Adviser
and the VK Adviser.
</TABLE>

25
<PAGE> 33

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- - ---------------------------- ----------------------------------------------
<S> <C>
Dennis J. McDonnell......... President, Chief Operating Officer and a
One Parkview Plaza Director of the Adviser, the VK Adviser, Van
Oakbrook Terrace, IL 60181 Kampen American Capital Advisors, Inc. and Van
Kampen American Capital Management, Inc.
Executive Vice President and a Director of
VKAC Holding and VKAC. President and Director
of Van Kampen Merritt Equity Advisors Corp.
Director of Van Kampen Merritt Equity Holding
Corp. and McCarthy, Crisanti & Maffei, S.A.
Chief Executive Officer and Director of
McCarthy, Crisanti & Maffei, Inc. Chairman and
a Director of MCM Asia Pacific Company,
Limited. President and a Trustee/Director of
open-end investment companies and closed-end
investment companies advised by the Adviser
and the VK Adviser. Prior to July 1996,
President, Chief Operating Officer and
Director of VSM Inc. and VCJ Inc. Prior to
December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
Ronald A. Nyberg............ Executive Vice President, General Counsel and
One Parkview Plaza Secretary of VKAC and VKAC Holding. Executive
Oakbrook Terrace, IL 60181 Vice President, General Counsel and a Director
of Distributors, the Adviser, the VK Adviser,
Van Kampen American Capital Management, Inc.,
Van Kampen Merritt Equity Advisors Corp., and
Van Kampen Merritt Equity Holdings Corp.
Executive Vice President, General Counsel and
Assistant Secretary of Van Kampen American
Capital Advisors, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation, ACCESS,
Van Kampen American Capital Services, Inc. and
American Capital Shareholders Corporation.
Executive Vice President, General Counsel,
Assistant Secretary and Director of Van Kampen
American Capital Trust Company. General
Counsel of McCarthy, Crisanti & Maffei, Inc.
Vice President of open-end investment
companies and closed-end investment companies
advised by the Adviser. Vice President and
Secretary of open-end investment companies and
closed-end investment companies advised by the
VK Adviser. Director of ICI Mutual Insurance
Co., a provide of insurance to members of the
Investment Company Institute. Prior to July
1996, Executive Vice President and General
Counsel of VSM Inc., and Executive Vice
President, General Counsel and Director of
VCI.
</TABLE>

26
<PAGE> 34

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- - ---------------------------- ----------------------------------------------
<S> <C>
William R. Rybak............ Executive Vice President and Chief Financial
One Parkview Plaza Officer of VKAC Holding and VKAC since
Oakbrook Terrace, IL 60181 February 1993, and Treasurer of VKAC Holding
through December 1993. Executive Vice
President, Chief Financial Officer and a
Director of Distributors, the Adviser, the VK
Adviser and Van Kampen American Capital
Management, Inc. Executive Vice President,
Chief Financial Officer, Treasurer and
Director of Van Kampen Merritt Equity Advisors
Corp. Executive Vice President and Chief
Financial Officer of Van Kampen American
Capital Advisors, Inc., Van Kampen American
Capital Exchange Corporation, Van Kampen
American Capital Trust Company, ACCESS and
American Capital Contractual Services, Inc.
Executive Vice President, Chief Financial
Officer and Treasurer of American Capital
Shareholders Corporation, Van Kampen American
Capital Services, Inc. and Van Kampen Merritt
Equity Holdings Corp. Chief Financial Officer
and Treasurer of McCarthy, Crisanti & Maffei,
Inc. Chairman of the Board of Hinsdale
Financial Corp., a savings and loan holding
company. Prior to July 1996, Executive Vice
President, Chief Financial Officer and a
Director of VCJ Inc., and Executive Vice
President and Chief Financial Officer of VSM
Inc.
Peter W. Hegel.............. Executive Vice President of the Adviser, the
One Parkview Plaza VK Adviser and Van Kampen American Capital
Oakbrook Terrace, IL 60181 Advisors, Inc. Director of McCarthy, Crisanti
& Maffei, Inc. and Van Kampen American Capital
Management, Inc. Vice President of open-end
investment companies and closed-end investment
companies advised by the Adviser and the VK
Adviser. Prior to July 1996, Director of VSM
Inc.
Robert C. Peck, Jr.......... Executive Vice President of the VK Adviser.
2800 Post Oak Blvd. Executive Vice President and Director of the
Houston, TX 77056 Adviser. Vice President of certain open-end
investment companies and certain closed-end
investment companies advised by the Adviser
and the VK Adviser.
Alan T. Sachtleben.......... Executive Vice President of the VK Adviser.
2800 Post Oak Blvd. Executive Vice President and Director of the
Houston, Texas 77056 Adviser. Vice President of certain open-end
investment companies and certain closed-end
investment companies advised by the Adviser
and the VK Adviser.
</TABLE>

27
<PAGE> 35

The following table sets forth the Trustees and officers of the Funds who are
also officers of the Adviser.

<TABLE>
<CAPTION>
NAME POSITION WITH THE FUNDS
- - ------------------------------- -------------------------------------------
<S> <C>
Don G. Powell.................. President
Dennis J. McDonnell............ Executive Vice President
William N. Brown............... Vice President
Nori L. Gabert................. Vice President and Secretary
Curtis W. Morell............... Vice President and Chief Accounting Officer
Ronald A. Nyberg............... Vice President
Robert C. Peck, Jr. ........... Vice President
Alan T. Sachtleben............. Vice President
Paul R. Wolkenberg............. Vice President
Edward C. Wood III............. Vice President and Chief Financial Officer
John L. Sullivan............... Treasurer
Tanya M. Loden................. Controller
Huey P. Falgout, Jr. .......... Assistant Secretary
Steven M. Hill................. Assistant Treasurer
Robert Sullivan................ Assistant Controller
</TABLE>

The officers of the Trust serve for one year or until their respective
successors are chosen and qualified. The Trust's officers receive no
compensation from the Funds but may also be officers of the Adviser or officers
of affiliates of the Adviser and receive compensation in such capacities.

With respect to the Funds, as of August 12, 1996, the Trustees and officers as
a group owned less than 1% of the outstanding shares of each Fund. At such date
the "interested persons" of each Fund as a group owned an aggregate of less than
5% of the outstanding shares of such Fund.

No Trustee, other than Mr. Powell, has owned any securities of or has had any
other material interest in, or a material interest in a material transaction
with, the Adviser or its respective affiliates since the beginning of such
Fund's most recent fiscal year. With respect to the Sub-Adviser, no Trustee,
other than Mr. Lane, has owned any securities of or has had any other material
interest in, or a material interest in a material transaction in the Sub-Adviser
or its respective affiliates since the beginning of International Fund's most
recent fiscal year.

The address of PFS Distributors, Inc., the principal distributor of the Funds'
Shares, is 3100 Breckenridge Blvd., Bldg. 200, Duluth, Georgia 30199-0001.

Following the Acquisition, the Adviser will be an affiliate of Morgan Stanley
& Co., a registered broker-dealer. The amount of commissions paid by the Common
Sense Growth Fund and the Common Sense Growth and Income Fund to Morgan Stanley
& Co. during their most recently completed fiscal year was $1,296,936 and
$203,142, respectively. The other Funds paid no commissions to Morgan Stanley &
Co. during their most recently completed fiscal year.

28
<PAGE> 36

- - ------------------------------------------------------------------------------
EXPENSES
- - ------------------------------------------------------------------------------

VKAC Holding and the Funds will share the expense of preparing, printing and
mailing the enclosed form of proxy, the accompanying Notice and this Proxy
Statement. VKAC Holding will bear such expenses to the extent that they relate
to the Acquisition (i.e., Proposals 1 and 2). The Funds will bear such expenses
to the extent that they relate to the management or governance of the Funds
(i.e., Proposals 3 and 4).

In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph or personal interview by
representatives of the Trust, the Adviser or VKAC, or by the Transfer Agent, or
by First Data Investors Services Group, a solicitation firm located in Boston,
Massachusetts that has been engaged to assist in proxy solicitations at an
estimated cost of approximately $43,760 for the Emerging Growth Fund, $47,180
for the Common Sense Government Fund, $864,650 for the Common Sense Growth Fund,
$203,880 for the Common Sense Growth and Income Fund, $8,060 for the
International Fund, $35,830 for the Common Sense Money Market Fund and $17,270
for the Municipal Fund.

- - ------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS
- - ------------------------------------------------------------------------------

As a general matter, each Fund does not hold regular annual meetings of
shareholders. Any Shareholder who wishes to submit proposals for consideration
at a meeting of such Shareholder's Fund should send such proposal to the
respective Fund at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. To be
considered for presentation at a shareholders' meeting, rules promulgated by the
SEC require that, among other things, a shareholder's proposal must be received
at the offices of such Fund a reasonable time before a solicitation is made.
Timely submission of a proposal does not necessarily mean that such proposal
will be included.

- - ------------------------------------------------------------------------------
GENERAL
- - ------------------------------------------------------------------------------

Management of each Fund does not intend to present and does not have reason to
believe that others will present any other items of business at the Meeting.
However, if other matters are properly presented to the Meeting for a vote, the
proxies will be voted upon such matters in accordance with the judgment of the
persons acting under the proxies.

A list of shareholders of each Fund entitled to be present and vote at the
Meeting will be available at the offices of the respective Fund, 2800 Post Oak
Boulevard, Houston, Texas 77056, for inspection by any shareholder during
regular business hours for ten days prior to the date of the Meeting.

29
<PAGE> 37

Failure of a quorum to be present at the Meeting for any Fund may necessitate
adjournment and may subject such Fund to additional expense.

IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.

NORI L. GABERT,
Vice President and Secretary
August 30, 1996

30
<PAGE> 38

ANNEX A
LIST OF 5% BENEFICIAL OWNERS AS OF AUGUST 12, 1996

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF CLASS PERCENTAGE
OF HOLDER FUND OWNERSHIP OF SHARES OWNERSHIP
- - -------------------------- -------------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
PFS INVESTMENTS Emerging Growth 1,381,245 A 61.0%
3100 BRECKINRIDGE BLVD. Emerging Growth 1,155,095 B 62.3%
BLDG. 200 International Equity 325,274 A 59.8%
DULUTH, GEORGIA 30199-0001 International Equity 261,882 B 61.5%
115,012,067 1 67.9%
Growth
1,400,747 A 56.0%
Growth
2,282,288 B 58.6%
Growth
31,039,069 1 58.7%
Growth & Income
802,388 A 50.9%
Growth & Income
1,444,928 B 54.7%
Growth & Income
12,936,196 1 45.3%
Government
354,594 A 36.3%
Government
552,825 B 43.0%
Government
VAN KAMPEN AMERICAN Money Market 20 A 100%
CAPITAL ASSET Money Market 20 B 100%
MANAGEMENT INC. Emerging Growth 1 1 100%
2800 POST OAK BLVD. International Equity 1 1 100%
HOUSTON, TEXAS 77056
BETTY JOHNSON Municipal Bond 4,850 A 99.9%
3301 BALES AVE.
KANSAS CITY, MISSOURI
64128
RANDALL L. ALBRIGHT Municipal Bond 416 B 99.7%
22169 MOHAWK DR.
GOSHEN, INDIANA 46526
</TABLE>

A-1
<PAGE> 39

ANNEX B

- - ------------------------------------------------------------------------------
FORM OF INVESTMENT ADVISORY AGREEMENT
- - ------------------------------------------------------------------------------

AGREEMENT made this day of , 199 by and between COMMON SENSE TRUST,
a Massachusetts business trust, hereinafter referred to as the "TRUST," and Van
Kampen American Capital Asset Management, Inc., a Delaware corporation,
hereinafter referred to as the "Adviser."

The TRUST and the ADVISER agree as follows:

(1.) APPOINTMENT

a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Common Sense Fund (the "Fund") for the period and on the terms
set forth in this Agreement. The ADVISER accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.

b. In the event that the TRUST establishes one or more funds with respect to
which it desires to retain the ADVISER to act as investment adviser hereunder,
it shall notify the ADVISER in writing. If the ADVISER is willing to render such
services it shall notify the TRUST in writing whereupon such fund shall become a
fund hereunder and the compensation payable by such new fund to the ADVISER will
be as agreed in writing at that time.

(2.) SERVICES RENDERED AND EXPENSES PAID BY ADVISER

The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Declaration of
Trust, Bylaws, registration statement, prospectuses and the stated investment
objectives, policies and restrictions of the Fund, shall:

a. manage the investment and reinvestment of the TRUST's assets
including, by way of illustration, the evaluation of pertinent economic,
statistical, financial and other data, determination of the industries and
companies to be represented in the Fund, and formulation and implementation
of investment programs;

b. maintain a trading desk and place all orders for the purchase and
sale of portfolio investments for the account of the Fund of the TRUST with
brokers or dealers selected by the ADVISER;

c. conduct and manage the day-to-day operations of the TRUST including,
by way of illustration, the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments thereto,
the

B-1
<PAGE> 40

furnishing of legal services except for services provided by outside counsel
to the TRUST selected by the Trustees, and the supervision of the TRUST's
Treasurer and the personnel working under his direction; and

d. furnish to the TRUST office space, facilities, equipment and
personnel adequate to provide the services described in paragraphs a., b.,
and c. above and pay the compensation of each TRUST trustee and TRUST
officer who is an affiliated person of the ADVISER, except the compensation
of the TRUST's Treasurer and related expenses as provided below.

In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the TRUST's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the TRUST to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a fund investment transaction in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction. In
the event of such authorization and to the extent authorized by law the ADVISER
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of such action.

Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of fund investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the TRUST which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the TRUST's financial statements, preparation of such financial
statements and other TRUST documents and reports of a financial nature required
by federal and state laws, and participation in the production of the TRUST's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders; (v) fees of outside counsel to and of independent accountants
of the TRUST selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the TRUST and its shares
for

B-2
<PAGE> 41

distribution under state and federal securities laws; (x) expenses of printing
and mailing of registration statements, prospectuses, reports, notices and proxy
solicitation materials of the TRUST; (xi) all other expenses incidental to
holding meetings of the TRUST's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the TRUST's membership in trade associations approved by the Trustees; and
(xv) such non-recurring expenses as may arise, including those associated with
actions, suits, or proceedings to which the TRUST is a party and the legal
obligation which the TRUST may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
between the TRUST and any other party, such allocations shall be pursuant to
methods approved by the Trustees.

(3.) ROLE OF ADVISER

The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.

Except as otherwise required by the Investment Company Act of 1940 ("1940
Act") any of the shareholders, trustees, officers and employees of the TRUST may
be a shareholder, director, officer or employee of, or be otherwise interested
in, the ADVISER, and in any person controlled by or under common control with
the ADVISER, and the ADVISER, and any person controlled by or under common
control with the ADVISER, may have an interest in the TRUST.

Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the TRUST, or
to any shareholder of the TRUST, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.

(4.) COMPENSATION PAYABLE TO ADVISER

The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the Fund,
a monthly fee calculated at the following annual rates:

A. Common Sense Emerging Growth Fund
Common Sense Growth Fund
Common Sense Growth and Income Fund

.65% of the first $1 billion of average daily net assets; .60% of the
next $1 billion; .55% of the next $1 billion; .50% of the next $1
billion; and .45% of average daily net assets in excess of $4 billion.

B-3
<PAGE> 42

B. Common Sense Government Fund

.60% of the first $1 billion of average daily net assets; .55% of the
next $1 billion; .50% of the next $1 billion; .45% of the next $1
billion; .40% of the next $1 billion; and .35% of average daily net
assets in excess of $5 billion.

C. Common Sense International Equity Fund

1.00% of the Fund's average daily net assets.

D. Common Sense Money Market Fund

.50% of the first $2 billion of average daily net assets; .475% of the
next $2 billion; and .45% of average daily net assets in excess of $4
billion.

E. Common Sense Municipal Bond Fund

.60% of the first $1 billion of average daily net assets; .55% of the
next $1 billion; .50% of the next $1 billion; and .45% of average daily
net assets in excess of $3 billion.

Average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given calendar month, made in
the manner provided in the TRUST's Declaration of Trust.

The fees payable to the ADVISER by the TRUST pursuant to this Section 4 shall
be 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., or its successor, in
connection with the purchase and sale of assets of the TRUST, less any direct
expenses incurred by such person, in connection with obtaining such commissions,
fees, brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the Fund's transactions and shall advise the Trustees of any
other commissions, fees, brokerage or similar payments which may be possible for
the ADVISER or any other direct or indirect majority owned subsidiary of VK/AC
Holding, Inc., or its successor, to receive in connection with the Fund's
transactions or other arrangements which may benefit the TRUST.

In the event that the ordinary business expenses of the Fund, for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the TRUST's shares are qualified for sale, unless waived, the
compensation due to the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the TRUST, and if such
amount should exceed

B-4
<PAGE> 43

such monthly compensation, the ADVISER shall pay the Fund an amount sufficient
to make up the deficiency, subject to readjustment during the TRUST's fiscal
year. For purposes of this paragraph, all ordinary business expenses of the Fund
include the investment advisory fee and other operating costs paid by the Fund
except for (i) interest and taxes; (ii) brokerage commissions; (iii) expenses
incurred as a result of litigation in connection with a suit involving a claim
for recovery by the Fund; (iv) as a result of litigation involving a defense
against a liability asserted against the TRUST and the Fund, provided that, if
the ADVISER made the decision or took the actions which resulted in such claim,
it acted in good faith without negligence or misconduct; (v) any indemnification
paid by the TRUST to its officers and trustees and the ADVISER in accordance
with applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to PFS Distributors, Inc., the distributor of the Trust's shares,
in connection with a distribution plan adopted by the Trust's Trustees pursuant
to Rule 12b-1 under the 1940 Act.

If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.

(5.) BOOKS AND RECORDS

In compliance with the requirements of the 1940 Act, the ADVISER hereby agrees
that, to the extent required by law, all records which it maintains for the
TRUST are the property of the TRUST and further agrees to surrender promptly to
the TRUST any of such records upon the TRUST's request. The ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the Act.

(6.) DURATION AND TERMINATION

This Agreement will become effective with respect to the Fund on the date
hereof, and with respect to any additional funds, on the date of receipt by the
TRUST of notice from the ADVISER in accordance with Section 1(b) hereof that the
ADVISER is willing to serve as investment adviser with respect to such fund,
provided that this Agreement (as supplemented by the terms specified in any
notice and agreement pursuant to Section 1(b) hereof) shall have been approved
by the shareholders of the Fund subject to this Agreement, in accordance with
the requirements under the 1940 Act, and, unless sooner terminated as provided
herein, shall continue in effect for a period of two years. Thereafter, if not
terminated, this Agreement shall continue in effect as to a particular Fund for
successive periods of twelve months each, provided such continuance is
specifically approved at least annually, (a) by the vote of a majority of those
members of the TRUST's Trustees who are not interested persons of any party to
this Agreement, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the TRUST's

B-5
<PAGE> 44

Trustees or by vote of a majority of the outstanding voting securities of the
Fund. Notwithstanding the foregoing, this Agreement may be terminated as to the
Fund at any time, without the payment of any penalty, by the TRUST (by vote of
the TRUST's Trustees or by vote of a majority of the outstanding voting
securities of the Fund), or by the ADVISER, on sixty days' written notice. This
Agreement will immediately terminate in the event of its assignment.

(7.) AMENDMENT OF THIS AGREEMENT

No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective as to the Fund until
approved by vote of a majority of the outstanding voting securities of the Fund
if such vote is required by the 1940 Act.

(8.) MISCELLANEOUS PROVISIONS

For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the TRUST by the Securities and Exchange
Commission, or such interpretive positions as may be taken by the Commission or
its staff, under said Act, and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934 and the Rules and
Regulations thereunder.

The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Common Sense Trust" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of said TRUST shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise in connection with the
affairs of said TRUST, but the Trust Estate only shall be liable. All
obligations of the TRUST under this Agreement shall apply only on a Fund by Fund
basis and the assets of one Fund shall not be liable for the obligations of any
other Fund.

B-6
<PAGE> 45

The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.

COMMON SENSE TRUST

By:
- - --------------------------------------------------------------------------

Name:
- - -----------------------------------------------------------------------

Its:
- - --------------------------------------------------------------------------

VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.

By:
- - --------------------------------------------------------------------------

Name:
- - -----------------------------------------------------------------------

Its:
- - --------------------------------------------------------------------------

B-7
<PAGE> 46

ANNEX C

BROKERAGE BY FUND

<TABLE>
<CAPTION>
AGGREGATE % OF
AMOUNT OF AGGREGATE
COMMISSIONS COMMISSIONS
PAID TO PAID TO
TOTAL AFFILIATED AFFILIATED
FUND NAME COMMISSIONS BROKERS BROKERS
- - ------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Common Sense Emerging
Growth...................... $ 33,144 $ 310(1) .94%(1)
Common Sense Government....... $ 125,499 $ 20,942(1) 16.69%(1)
Common Sense Growth........... $11,276,872 $ 253,827(1) 2.25%(1)
$ 5,250(2) .05%(2)
Common Sense Growth and
Income...................... $ 2,443,026 $ 118,952(1) 4.87%(1)
$ 189(2) .01%(2)
Common Sense International
Equity...................... $ 51,642 $ 1,077(1) 2.1%(1)
Common Sense Money Market..... N/A N/A N/A
Common Sense Municipal Bond... N/A N/A N/A
</TABLE>

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

(1) Smith Barney Inc.

(2) Robinson Humphrey, Inc.

N/A Not applicable.

C-1
<PAGE> 47

ANNEX D

The following table indicates the size of each investment company advised or
subadvised by the Adviser, the advisory fee rate, the amount of advisory fees or
subadvisory fees paid to the Adviser for the last fiscal year, and the amount of
other material fees paid to such persons for such fiscal year. Average net
assets are calculated on a daily basis for open-end funds and on a weekly basis
for closed-end funds.

<TABLE>
<CAPTION>
AMOUNT
OF OTHER
MATERIAL
ANNUAL AGGREGATE PAYMENTS
MANAGEMENT AMOUNT OF TO
FEE AS ADVISER/SUB- ADVISER/SUB-
NET PERCENT ADVISER'S ADVISER
ASSETS OF FEE FOR FOR THE
ON AUGUST AVERAGE LAST LAST
12, NET FISCAL FISCAL
NAME 1996 ASSETS YEAR YEAR
- - ----------------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
(IN MILLIONS)
ADVISER
OPEN-END:
Van Kampen American Capital
Comstock Fund.............. $1,200.7 (12) $5,080,809 $146,156
Van Kampen American Capital
Corporate Bond Fund........ 195.6 (1) 907,960 71,183
Van Kampen American Capital
Emerging Growth Fund....... 2,261.0 (20) 5,810,837 158,937
Van Kampen American Capital
Enterprise Fund............ 1,372.9 (12) 5,293,215 131,706
Van Kampen American Capital
Equity Income Fund......... 989.4 (1) 2,603,866 108,597
Van Kampen American Capital
Exchange Fund.............. 51.8 (2) 221,917 52,584
Van Kampen American Capital
Global Managed Assets
Fund....................... 29.6 (15) 27,072 29,687
Van Kampen American Capital
Government Securities
Fund....................... 2,551.3 (4) 14,930,811 361,240
Van Kampen American Capital
Government Target Fund..... 16.0 (2) 78,242 + 49,880
Van Kampen American Capital
Growth and Income Fund..... 678.6 (1) 1,412,556 76,989
Van Kampen American Capital
Harbor Fund................ 447.7 (17) 2,494,437 91,039
Van Kampen American Capital
High Incorporate Bond
Fund....................... 551.0 (5) 2,650,114 107,087
Van Kampen American Capital
Life Investment Trust
Asset Allocation Fund...... 62.4 (6) 216,539 + 57,576
Domestic Income Fund....... 22.0 (6) 43,177 + 49,819
Emerging Growth Fund....... 5.3 (26) (15,060)+ 3,222
Enterprise Fund............ 79.3 (6) 299,035 + 55,772
Global Equity Fund......... 3.4 (15) (32,048)+ 7,200
Growth and Income Fund..... * (27) * *
Government Fund............ 59.8 (6) 256,026 + 57,526
</TABLE>

D-1
<PAGE> 48

<TABLE>
<CAPTION>
AMOUNT
OF OTHER
MATERIAL
ANNUAL AGGREGATE PAYMENTS
MANAGEMENT AMOUNT OF TO
FEE AS ADVISER/SUB- ADVISER/SUB-
NET PERCENT ADVISER'S ADVISER
ASSETS OF FEE FOR FOR THE
ON AUGUST AVERAGE LAST LAST
12, NET FISCAL FISCAL
NAME 1996 ASSETS YEAR YEAR
- - ----------------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Money Market Fund.......... $ 20.6 (6) $ 40,915 + $ 48,109
Real Estate Securities
Fund..................... 35.8 (15) 10,963 + 3,153
Van Kampen American Capital
Limited Maturity Government
Fund....................... 72.3 (3) 312,558 + 65,703
Van Kampen American Capital
Real Estate Securities
Fund....................... 29.6 (15) 98,904 + 48,971
Van Kampen American Capital
Reserve Fund............... 536.0 (1) 1,836,244 + 127,090
Van Kampen American Capital
Pace Fund 2,530.8 (12) 11,589,844 351,270
Van Kampen American Capital
Small Capitalization
Fund....................... 219.1 (23) 0 23,710
Van Kampen American Capital
Tax-Exempt Trust High Yield
Municipal Fund............. 850.8 (7) 3,897,884 + 158,098
Van Kampen American Capital
Texas Tax Free Income
Fund....................... 17.1 (16) 61,589 + 67,413
Van Kampen American Capital
U.S. Government Trust For
Income..................... 224.5 (18) 1,874,427 + 91,294
Van Kampen American Capital
World Portfolio Series
Trust
Van Kampen American Capital
Global Equity Fund....... 209.0 (15) 1,600,616 + 31,987
Van Kampen American Capital
Global Government
Securities Fund.......... 140.4 (14) 1,249,294 + 31,987
Common Sense Trust
Common Sense Emerging
Growth Fund.............. 72.5 (9) 2,169 + 6,365
Common Sense Government
Fund..................... 318.8 (13) 1,979,623 92,277
Common Sense Growth Fund... 2,943.9 (9) 14,436,748 277,991
Common Sense Growth and
Income Fund.............. 984.7 (9) 4,937,121 123,458
Common Sense International
Equity Fund.............. 15.5 (15) (46,974)+ 4,807
Common Sense Money Market
Fund..................... 60.8 (10) (118,614)+ 57,491
Common Sense Municipal Bond
Fund..................... 122.4 (11) 678,530 90,522
Smith Barney Series Fund
Emerging Growth
Portfolio.................. 19.0 (21) 80,733 0
</TABLE>

D-2
<PAGE> 49

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

(1) 0.50% on the first $150 million; 0.45% on the next $100 million; 0.40% on
the next $100 million; and 0.35% on the excess over $350 million.

(2) 0.50% on the Fund's average net assets.

(3) 0.50% on the first $1 billion; 0.475% on the next $1 billion; 0.45% on the
next $1 billion; 0.40% on the next $1 billion; and 0.35% on the excess over
$4 billion.

(4) 0.540% on the first $1 billion; 0.515% on the next $1 billion; 0.490% on
the next $1 billion; 0.440% on the next $1 billion; 0.390% on the next $1
billion; 0.340% on the next $1 billion; 0.290% on the next $1 billion; and
0.240% on the excess of over $7 billion.

(5) 0.625% on the first $150 million; 0.55% on the next $150 million; and 0.50%
on the next $300 million.

(6) 0.50% on the first $500 million of the combined net assets of certain of
the Funds of the Trust; 0.45% on the next $500 million; and 0.40% on the
excess over $1 billion.

(7) 0.60% on the first $300 million: 0.55% on the next $300 million; and 0.50%
on the excess over $600 million.

(8) 0.65% of the Fund's average weekly net assets.

(9) 0.65% on the first $1 billion; 0.60% on the next $1 billion; 0.55% on the
next $1 billion; 0.50% on the next $1 billion; and 0.45% on the excess over
$4 billion.

D-3
<PAGE> 50

(10) 0.50% on the first $2 billion; 0.475% on the next $2 billion; and 0.45% on
the excess over $4 billion.

(11) 0.60% on the first $1 billion; 0.55% on the next $1 billion; 0.50% on the
next $1 billion; and 0.45% on the excess over $3 billion.

(12) 0.50% on the first $1 billion; 0.45% on the next $1 billion; 0.40% on the
next $1 billion; and 0.35% on the excess over $3 billion.

(13) 0.60% on the first $1 billion; 0.55% on the next $1 billion; 0.50% on the
next $1 billion; 0.45% on the next $1 billion; 0.40% on the next $1
billion; and 0.35% on the excess over $5 billion.

(14) 0.75% of the Fund's average daily net assets.

(15) 1.00% of the Fund's average daily net assets.

(16) 0.60% on the first $300 million; 0.55% on the next $300 million; and 0.50%
on the excess over $600 million.

(17) 0.55% on the first $350 million; 0.50% on the next $350 million; 0.45% on
the next $350 million; and 0.40% on the excess over $1.05 billion.

(18) 0.60% of the Fund's average daily net assets.

(19) 50% of the fees received by the investment adviser to the Portfolio less
50% of the amount of any excess expenses paid by the investment adviser on
behalf of the Portfolio.

(20) 0.575% on the first $350 million; 0.525% on the next $350 million; 0.475%
on the next $350 million; and 0.425% on the excess over $1.05 billion.

(21) 0.75 of 1.00% of the Portfolio's average daily net assets.

(22) 0.45% on the Fund's average weekly net assets.

(23) The Adviser serves as investment adviser without fee for Van Kampen
American Capital Small Capitalization Fund ("Small Cap"), the shares of
which are held by other Van Kampen American Capital Funds listed above. The
assets in Small Cap are also reflected in the assets of the Funds that own
shares of Small Cap.

(24) 0.325% of the Portfolio's average daily net assets.

(25) 0.65% of the Fund's average daily net assets.

(26) 0.70% of the Fund's average daily net assets.

(27) 0.60% on the first $500 million; 0.55% on the excess over $500 million.

* This fund has not commenced operations.

** This fund has not yet completed a full year of operations.
N/A Not applicable
+ This amount is net of either a voluntary advisory fee waiver or expense
reduction.

D-4
<PAGE> 51

ANNEX E

FORM OF
SUBADVISORY AGREEMENT

COMMON SENSE TRUST

(COMMON SENSE INTERNATIONAL EQUITY FUND)

, 1996

Smith Barney Mutual Funds Management Inc.
1345 Avenue of the Americas, 22nd Floor
New York, New York 10105

Dear Sirs:

Common Sense Trust (the "Trust"), a corporation organized under the laws of
the Commonwealth of Massachusetts, on behalf of the Common Sense International
Equity Fund (the "Fund") and Van Kampen American Capital Asset Management, Inc.
(the "Adviser"), each confirms its agreement with Smith Barney Mutual Funds
Management Inc. (the "Sub-Adviser"), as follows:

1. INVESTMENT DESCRIPTION; APPOINTMENT

The Trust desires to employ its capital relating to the Fund by investing and
reinvesting in investments of the kind and in accordance with the investment
objective(s), policies and limitations specified in the prospectus (the
"Prospectus") and the statement of additional information (the "Statement")
filed with the Securities and Exchange Commission as part of the Trust's
Registration Statement on Form N-1A, as amended or supplemented from time to
time, and in the manner and to the extent as may from time to time be approved
by the Trustees of the Trust (the "Board"). Copies of the Prospectus and the
Statement have been or will be submitted to the Sub-Adviser. The Trust agrees
promptly to provide copies of all amendments and supplements to the current
Prospectus and the Statement to the Sub-Adviser on an on-going basis. Until the
Trust delivers any such amendment or supplement to the Sub-Adviser, the
Sub-Adviser shall be fully protected in relying on the Prospectus and Statement
of Additional Information as previously furnished to the Sub-Adviser. The Trust
employs the Adviser as the advisor to the Fund pursuant to an advisory agreement
dated , 1996 (the "Advisory Agreement") and the Trust and the Adviser
desire to employ and hereby appoint the Sub-Adviser to act as the investment
sub-adviser to the Fund. The Sub-Adviser accepts the appointment and agrees to
furnish the services for the compensation set forth below.

E-1
<PAGE> 52

2. SERVICES AS SUB-ADVISER

Subject to the supervision, direction and approval of the Trustees of the
Trust and the Adviser, the Sub-Adviser shall conduct a continual program of
investment, evaluation and, if appropriate in the view of the Sub-Adviser, sale
and reinvestment of the Fund's assets. The Sub-Adviser is authorized, in its
sole discretion and without prior consultation with the Adviser, to: (a) manage
the Fund's assets in accordance with the Fund's investment objective(s) and
policies as stated in the Prospectus and the Statement; (b) make investment
decisions for the Fund; (c) place purchase and sale orders for portfolio
transactions on behalf of the Fund; and (d) employ professional portfolio
managers and securities analysts who provide research services to the Fund.

In addition, (i) the Sub-Adviser shall furnish the Adviser daily information
concerning portfolio transactions and quarterly and annual reports concerning
transactions and performance of the Fund in such form as may be mutually agreed
upon, and the Sub-Adviser agrees to review the Fund and discuss the management
of it with the Adviser and the Board of Directors of the Trust.

(ii) Unless the Adviser gives the Sub-Adviser written instructions to the
contrary, the Sub-Adviser shall use its good faith judgment in a manner which it
reasonably believes best serves the interests of the Fund's shareholders to vote
or abstain from voting all proxies solicited by or with respect to the issuers
of securities in which assets of the Fund may be invested.

(iii) The Sub-Adviser shall maintain and preserve such records related to the
Fund's transactions as required under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Adviser shall maintain and preserve all books and
other records not related to the Fund's transactions as required under the 1940
Act. The Sub-Adviser shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services hereunder reasonably requested by the
Adviser to keep and preserve the books and records of the Fund. The Sub-Adviser
agrees that all records which it maintains for the Fund are the property of the
Trust and the Sub-Adviser will surrender promptly to the Trust copies of any
such records.

(iv) The Sub-Adviser shall maintain compliance procedures for the Fund that it
reasonably believes are adequate to ensure the Fund's compliance with (A) the
1940 Act and the rules and regulations promulgated thereunder and (B) the Fund's
investment objective(s) and policies as stated in the Prospectus and Statement.
The Sub-Adviser shall maintain compliance procedures that it reasonably believes
are adequate to ensure its compliance with the Investment Advisers Act of 1940.

(v) The Sub-Adviser has adopted a written code of ethics that it reasonably
believes complies with the requirements of Rule 17j-1 under the 1940 Act, which
it will provide to the Trust. The Sub-Adviser has policies and procedures
regarding the detection and prevention and the misuse of material, nonpublic
information by

E-2
<PAGE> 53

the Sub-Adviser and its employees as required by the Insider Trading and
Securities Fraud Enforcement Act of 1988.

3. BROKERAGE

In selecting brokers or dealers (including, if permitted by applicable law,
Smith Barney Inc. or any other broker or dealer affiliated with the Adviser of
the Sub-Adviser) to execute transactions on behalf of the Fund, the Sub-Adviser
will seek the best overall terms available. In assessing the best overall terms
available for any transaction, the Sub-Adviser will consider factors it deems
relevant, including, but not limited to, the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute a particular transaction, and in evaluating the
best overall terms available, the Sub-Adviser is authorized to consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to the Fund and/or other accounts
over which the Sub-Adviser or its affiliates exercise investment discretion.
Nothing in this paragraph shall be deemed to prohibit the Sub-Adviser from
paying an amount of commission for effecting a securities transaction in excess
of the amount of commission another member of an exchange, broker, or dealer
would have charged for effecting that transaction, if the Sub-Adviser determined
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such member, broker, or
dealer, viewed in terms of either that particular transaction or its overall
responsibilities with respect to the Fund and/or other accounts over which the
Sub-Adviser or its affiliates exercise investment discretion.

4. INFORMATION PROVIDED TO THE TRUST AND THE ADVISER

The Sub-Adviser shall keep the Trust and the Adviser informed of developments
materially affecting the Fund's holdings, and shall, on its own initiative,
furnish the Trust and the Adviser from time to time with whatever information
the Sub-Adviser believes is appropriate for this purpose.

5. COMPENSATION TO SBM

For its services hereunder the Sub-Adviser shall receive an amount for each
month (or such other valuation period as may be mutually agreed upon)
equivalent, on an annual basis, to 50% of the compensation actually received by
the Adviser pursuant to the investment advisory fee schedule set forth in the
Advisory Agreement taking into account any waiver or return to the Fund of any
or all of such advisory fee by the Adviser (with any such return of fees to be
treated as if not actually received).

E-3
<PAGE> 54

6. EXPENSES

The Sub-Adviser shall bear all expenses (excluding brokerage costs, custodian
fees, auditors fees or other expenses to be borne by the Fund or the Trust) in
connection with the performance of its services under the Agreement. The Fund
will bear certain other expenses to be incurred in its operation, including, but
not limited to, investment advisory fees, sub-advisory fees (other than
sub-advisory fees paid pursuant to this Agreement) and administration fees; fees
for necessary professional and brokerage services; costs relating to local
administration of securities; fees for any pricing service; the costs of
regulatory compliance; and pro rata costs associated with maintaining the
Trust's legal existence and shareholder relations. All other expenses not
specifically assumed by the Sub-Adviser hereunder or by the Adviser under the
Advisory Agreement are borne by the Fund or the Trust.

7. STANDARD OF CARE

The Sub-Adviser shall exercise its best judgment and shall act in good faith
in rendering the services listed in paragraphs 2 and 3 above. The Sub-Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund or the Adviser in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Sub-Adviser against any liability to the
Adviser, the Trust or to the shareholders of the Fund to which the Sub-Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Sub-Adviser's reckless disregard of its obligations and duties under this
Agreement.

8. TERM OF AGREEMENT

This Agreement shall become effective on the date hereof (the "Effective
Date") and shall continue for an initial two-year term and shall continue
thereafter so long as such continuance is specifically approved at least
annually as required by the 1940 Act. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Trustees of the Trust or by vote of
holders of a majority (as defined in the 1940 Act and the rules thereunder) of
the outstanding voting securities of the Fund, or upon 60 days' written notice,
by the Sub-Adviser. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act and the rules thereunder).

9. SERVICES TO OTHER COMPANIES OR ACCOUNTS

The Trust understands that the Sub-Adviser now acts, will continue to act and
may act in the future as investment manager or adviser to fiduciary and other
managed accounts, and as investment manager or adviser to other investment

E-4
<PAGE> 55

companies, including any offshore entities, or accounts, and the Trust has no
objection to the Sub-Adviser's so acting, provided that whenever the Fund and
one or more other investment companies or accounts managed or advised by the
Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to each company and account. The Trust recognizes that in some
cases this procedure may adversely affect the size of the position obtainable
for the Fund. In addition, the Trust understands that the persons employed by
the Sub-Adviser to assist in the performance of the Sub-Adviser's duties under
this Agreement will not devote their full time to such service and nothing
contained in this Agreement shall be deemed to limit or restrict the right of
the Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time
and attention to other businesses or to render services of whatever kind or
nature.

10. OTHER PROVISIONS

The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Common Sense Trust" refers to the TRUSTEES under the
Declaration collectively as TRUSTEES, but not as individuals or personally; and
no TRUSTEE, shareholder, officer, employee or agent of said TRUST shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise in connection with the
affairs of said TRUST, but the TRUST Estate only shall be liable. All
obligations of the TRUST under this Agreement shall apply only on a TRUST by
TRUST basis and the assets of one TRUST shall not be liable for the obligations
of any other TRUST.

E-5
<PAGE> 56

If the foregoing is in accordance with your understanding, kindly indicate
your acceptance of this Agreement by signing and returning the enclosed copy of
this Agreement.

Very truly yours,

COMMON SENSE TRUST

By:

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

VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC.

By:

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

Accepted:

SMITH BARNEY MUTUAL FUNDS
MANAGEMENT INC.

By:
- - --------------------------------------------------------------------------

E-6
<PAGE> 57

ANNEX F

The following table indicates the size of each investment company advised or
subadvised by the Sub-Adviser and the advisory fee rates.

<TABLE>
<CAPTION>
NET ASSETS ON
OTHER FUNDS WITH AUGUST 12, ANNUAL MANAGEMENT FEES
SIMILAR OBJECTIVES 1996 PERCENT OF AVERAGE NET ASSETS
- - ------------------------ -------------- -----------------------------
<S> <C> <C>
Smith Barney World
Funds, Inc./
International Equity
Portfolio............. $1,240,198,570 0.85%
Travelers Series
Fund Inc./
Smith Barney
International Equity
Portfolio............. 122,923,377 0.90%
Smith Barney
Series Fund/
International Equity
Portfolio............. 33,022,217 1.05%
</TABLE>

F-1
<PAGE> 58
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE THE EXPENSE OF ADDITIONAL MAILINGS.

PLEASE RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.

-- Please Fold and Detach Card at Perforation Before Mailing --

A FUND OF THE COMMON SENSE TRUST
PROXY SOLICITED BY THE TRUSTEES OF THE TRUST (THE "TRUST")

The undersigned, revoking previous proxies, hereby appoint(s) Don G. Powell,
Ronald A. Nyberg and Nori L. Gabert or any one or more of them, proxies, with
full power of substitution, to vote all shares of the Fund as indicated above
which the undersigned is entitled to vote at the Joint Special Meeting of
Shareholders of the Fund to be held in the 46th floor conference room of Van
Kampen American Capital, Inc., 2800 Post Oak Blvd., Houston, Texas 77056, on
October 29, 1996 at 2:00 P.M. and at any adjournments thereof. All powers may
be exercised by a majority of said proxy holders or substitutes voting or
acting or, if only one votes and acts, then by that one. This Proxy shall be
voted on the proposals described in the Proxy Statement as specified on the
reverse side. Receipt of the Notice of the Meeting and the accompanying Proxy
Statement is hereby acknowledged.

PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE

Date ___________________, 1996

NOTE: Please sign exactly as your name appears on this
Proxy. When signing in a fiduciary capacity, such as
executor, administrator, trustee, attorney, guardian,
etc., please so indicate. Corporate and partnership
proxies should be signed by authorized person indicating
the person's title.

|-------------------------------------------------------|
| |
| |
| |
| |
Signature(s) (Title(s), if applicable)

WHEN SHARES ARE REGISTERED WITH JOINT OWNERS, ALL
JOINT OWNERS SHOULD SIGN. CST
<PAGE> 59

VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE THE EXPENSE OF ADDITIONAL MAILINGS.

PLEASE RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.

- Please fold and detach card at perforation before mailing -

Please refer to the Proxy Statement discussion of the following matters:

IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSALS.

As to any other matter, said proxy shall vote in accordance with their
best judgment.

THE TRUSTEES RECOMMEND A VOTE FOR EACH OF THE FOLLOWING PROPOSALS:

Please vote by filling in the appropriate boxes below, as shown, using blue or
black ink or dark pencil. Do not use red ink. [X]

FOR AGAINST ABSTAIN

1. With respect to each Fund, to approve a new [ ] [ ] [ ]
investment advisory agreement.

2. With respect to Common Sense International [ ] [ ] [ ]
Equity Fund, to approve a new investment
subadvisory agreement.

3. With respect to Common Sense Municipal Bond [ ] [ ] [ ]
Fund, to approve certain changes to
fundamental investment policies.

4. With respect to each Fund, to ratify the [ ] [ ] [ ]
selection of Ernest & Young LLP as
independent auditors.